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Important news
Asian stocks were mixed overnight, with Japan, mainland China and Hong Kong in the red, while Taiwan, Korea and India posted slight gains.
The four-hour meeting between Biden and Xi met low expectations, although major progress was made in curbing exports of fentanyl ingredients, promoting communication between the two militaries and agreeing to talks on the risks of artificial intelligence. Biden’s comments on Taiwan and maintaining the one-China policy were positive. We shouldn’t expect the two sides to go to prom together, even though they are learning how to play well with each other in the sandbox.
Biden’s comment about the dictator got a lot of attention, although I ask what was worse: a CNN reporter said it was a fair question or that Biden fell for it. President Xi’s speech to US business leaders, including Tim Cook, Elon Musk and Jonathan Krane, was very positive about US-China relations and history, but was also a very personal speech about his time in San Francisco and Iowa. If you have time, I encourage you to read the speech, as to me it represents a strong commitment to maintaining strong diplomatic and business relations with the United States.
Hong Kong was hit by profit-taking led by growth stocks/sectors as neither the Biden-Xi summit nor strong/better-than-expected results from Tencent and JD.com inspired buyers. In Hong Kong, the most heavily traded by value were: Tencent +0.68%, Alibaba HK -2.22%, Xiaomi -6.55%, Meituan -1.41% and JD.com HK +1.98%.
This morning, Alibaba beat analysts’ expectations with revenue rising +9% year-on-year to RMB224.79 billion ($30.81 billion), versus expectations of RMB224.09 billion. Adjusted net profit increased +16% to RMB 140.188 billion (US$5.508 billion). versus expectations of RMB 140.042 billion, and adjusted earnings per share increased +21% to RMB 1.95 ($0.27). Core Chinese e-commerce sales increased 4% year-on-year to RMB 97.654 billion, while international sales increased +53% to RMB 24.511 billion. Cloud revenue rose just +2% to RMB 27,648, although the company’s decision to shut down its cloud business due to semiconductor restrictions in the US attracted widespread attention. Ultimately, the framework conditions for generating shareholder value through IPOs and spin-offs do not currently exist in Hong Kong.
Tencent had mentioned the hoarding of US chips in the run-up to US export controls. Keep in mind that Alibaba has made several management changes, with the new team potentially disagreeing with the previous spinoff plan. The stock’s negative reaction to positive results is a headache. However, the change of heart regarding the cloud spin-off may have caused confusion for some. The company is paying a dividend of $1 per share for the first time from its $85 billion in cash. The company used $1.62 billion of cash to repurchase shares during the quarter. At $79, the company is trading almost 50% in cash ($200 billion market cap vs. $85 billion in cash) and a forward P/E ratio of under 9!
NetEase (NTES US) beat the big three this morning/after-hours trading in Hong Kong: revenue, adjusted net income and adjusted earnings per share. Mainland investors bought the Hong Kong decline via Southbound Stock Connect with big purchases in the Hong Kong ETF Tracker and Hang Seng Tech ETFs. The mainland market has seen upward movements, so a slump is not unexpected. There was a fair amount of calm in China overnight, although the Biden-Xi meeting was portrayed in a positive light by mainland media. Foreign investors worth -$302 million returned to mainland stock sellers through Northbound Stock Connect.
The Hang Seng and Hang Seng Tech indices fell -1.36% and -1.85%, respectively, with a volume decline of -14.63% compared to yesterday, representing 105% of the 1-year average. 108 stocks rose while 370 fell. Mainboard short sales turnover is down -5% from yesterday, which is 128% of the 1-year average, as 29% of the turnover was short sales (remember that Hong Kong short sales turnover includes the short volume of ETFs, which determined by the ETF hedging of the market makers). ). The value factor and large caps outperformed or fell less than the growth factor and small caps. Communications and Energy were the only positive sectors, rising +0.43% and +0.42% respectively, while Technology fell -4.16%, Healthcare fell -3.74% and Consumer Staples fell closed at -2.46%. The top subsectors were food/staples, media and software, while the worst performers were technical hardware, pharmaceuticals and semiconductors. Southbound Stock Connect volume was high as mainland investors purchased over $556 million in Hong Kong stocks and ETFs, with Hong Kong Tracker and Hang Seng Tech ETFs recording moderate/large net purchases, while Tencent and Meituan There were net sales.
Shanghai, Shenzhen and the STAR Board were at -0.71%, -1.00% and -1.67% respectively as volume fell -13.88% from yesterday, representing 97% of the 1-year average corresponds. 942 stocks rose while 3,885 fell. The value factor and large caps outperformed or fell less than the growth factor and small caps. All sectors were negative, with Technology sector falling the most at -1.82%, Healthcare at -1.27% and Materials at -1.2%. The top subsectors were cultural media, office supplies and coal, while the worst performers were power generation equipment, semi-finished products and chemicals. Northbound Stock Connect volume was moderate/light as foreign investors sold -$302 million worth of mainland stocks, with LXJM, CATL and BYD representing small net purchases, while Longi and Ping An Bank recorded moderate net selling. The CNY and the Asia Dollar Index rose against the US dollar. The Treasury curve flattened while copper and steel rose.
Last night’s performance
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Last night’s exchange rates, prices and returns
- CNY per USD 7.24 versus 7.24 yesterday
- CNY per EUR 7.87 versus 7.86 yesterday
- 10-year Treasury yield 2.65% versus 2.66% yesterday
- China Development Bank 10-year bond yield 2.72% versus 2.73% yesterday
- Copper price +0.25% overnight
- Steel price +1.50% overnight
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I am the Chief Investment Officer of KraneShares, a China-focused provider of Exchange Traded Funds (ETFs). As a pioneer in the ETF industry, I have witnessed firsthand the rise in popularity of ETFs and helped an industry-leading global ETF provider grow assets under management from a few million to over $1.5 trillion. Drawing on my experience in capital markets, my voracious appetite for global financial news and a touch of humor, I aim to provide readers with an informative daily summary of the most important headlines and data from China’s financial markets. In addition to my contributions to Forbes, I am frequently interviewed and quoted in Bloomberg, CNBC, and the Wall Street Journal on topics related to the Chinese markets.
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