Week in Review
- Asian equities registered another choppy week of trading, mirroring US and developed markets. Markets were deepest in the red on Monday as investors feared a potential lockdown in Beijing.
- Multiple positive statements from the People’s Bank of China (PBOC), China’s central bank, and the State Council on the platform economy and real estate led to some minor equity rallies throughout the week.
- Several large cap A shares names reported positive Q1 earnings on Wednesday as earnings season kicked off in Mainland China.
- On Thursday, Baidu received official permission to offer completely driverless taxi rides in Beijing through its Apollo Go program. Previously, the company’s autonomous vehicles required emergency safety drivers.
Friday’s Key News
Asian equities had a strong day except for India and the Philippines as Mainland China and Hong Kong both outperformed.
Both Mainland China and Hong Kong were down in the morning session but ripped in the early afternoon following a release from the CPC Central Committee, which was presided over by President Xi. Specific to internet stocks, the release stated that “It is necessary to promote the healthy development of the platform economy, complete the special rectification of the platform economy, implement normalized supervision, and introduce specific measures to support the standardized and healthy development of the platform economy.” The interpretation is that this marks the end or, at least, a significant easing of internet regulation.
Hong Kong’s most heavily traded stocks were Tencent, which gained +11.07%, Meituan, which gained +15.51%, Alibaba HK, which gained +15.69%, JD.com HK, which gained +15.68, and Kuaishou, which gained +8.98%. Hong Kong volumes increased +56% from yesterday, showing strong investor participation in the rally. Was there short covering? 100%. Hong Kong short turnover increased +50% from yesterday, which is 161% of the 1-year average. Southbound Stock Connect was closed so today’s move was without the participation of Mainland investors.
After the Hong Kong close, Bloomberg News reported that “according to people familiar with the matter,” China is close to allowing the Public Company Accounting Oversight Board (PCAOB) to perform onsite audit reviews in China, which would eliminate the potential for ADR delisting presented by Holding Foreign Companies Accountable Act (HFCAA). Let’s hope so!
The South China Morning Post stated that regulators will meet with internet companies next week in an effort to prioritize domestic consumption. We have repeatedly pointed out the necessity for domestic consumption to pick up. Furthermore, one third of all retail sales go through internet companies. It makes sense to alleviate regulatory pressure as the transmission engines for domestic consumption are needed to jump start the economy.
It was a very strong and broad move in both China and Hong Kong. The CPC meeting was held to “analyze and study the current economic situation and economic work”. It acknowledged that the impacts of both covid and the Ukraine crisis “have led to increased risks and challenges,” while reiterating “people first, life first.” It seemed to indicate a balance “to efficiently coordinate epidemic prevention and control and economic and social development”. To stabilize the economy, it was recommended to “implement policies such as tax rebates, tax reduction and fee reductions, and make good use of various monetary policy tools.” This should be done “quickly” while emphasizing “the leading role of consumption in the economic cycle.” It reiterated that “houses are for living in, not for speculation” but also the need to “support localities to improve real estate policies based on local condition and promote the stable and healthy development of the real estate market.” We often view China as a singular entity though it is a diverse country not only geographically, but also economically. Not all Chinese cities have high real estate prices. Allowing flexibility on policies at the local level makes sense.
The Hang Seng Index and Hang Seng Tech Index closed +4.01% and +9.96%, respectively, on volume that was +56% higher than yesterday, which is 114% of the 1-year average. There were 393 advancing stocks and just 98 declining stocks. Hong Kong short sale volume rose +50%, which is 161% of the 1-year average. Leading sectors were discretionary, which gained +12.47%, communication, which gained +10.39%, and tech, which gained +6.26% while energy was the only off sector, down -0.43%. Growth factors outperformed while value sectors underperformed today. Southbound Stock Connect was closed due to Monday’s holiday.
Shanghai, Shenzhen, and the STAR Board gained +2.41%, +3.89%, and 4.88% on volume which was +14.93%, which is 89% of the 1-year average. There were 4,238 advancing stocks and just 218 declining stocks. Leading sectors were communication, which gained +7.26%, tech, which gained +4.99%, discretionary, which gained +4.61%, industrials, which gained +4.29%, and materials, which gained +4.17% as all sectors were positive. Growth factors outperformed value and dividend factors. Foreign investors bought $644 million worth of Mainland stocks today via Northbound Stock Connect. Treasury bonds gained, CNY gained +0.63% versus the US dollar, and copper gained +0.16%.
Last Night’s Exchange Rates, Prices, & Yields
- CNY/USD 6.60 versus 6.63 yesterday
- CNY/EUR 6.96 versus 6.97 yesterday
- Yield on 1-Day Government Bond 1.59% versus 1.32% yesterday
- Yield on 10-Year Government Bond 2.84% versus 2.85% yesterday
- Yield on 10-Year China Development Bank Bond 3.07% versus 3.07% yesterday
- Copper Price +0.16% overnight
Originally Posted on April 29, 2022 – Internet Regulation Cycle Eases as Domestic Consumption Becomes Job #1, Week in Review
Author Positions as of 4/29/22 are KBA, KALL, KCNY, KFYP, KCNY, KEMQ, BZUN, HSBC, KWEB, KHYB, LI US
Charts Source: KraneShares
Content on China Last Night is for informational purposes only and should not be construed as investment advice. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results; material is as of the dates noted and is subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding the funds or any security in particular.
This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities. Investing involves risk, including possible loss of principal.
This material contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.
Forward-looking statements (including Krane’s opinions, expectations, beliefs, plans, objectives, assumptions, or projections regarding future events or future results) contained in this presentation are based on a variety of estimates and assumptions by Krane. These statements generally are identified by words such as “believes,” “expects,” “predicts,” “intends,” “projects,” “plans,” “estimates,” “aims,” “foresees,” “anticipates,” “targets,” “should,” “likely,” and similar expressions. These also include statements about the future, including what “will” happen, which reflect Krane’s current beliefs. These estimates and assumptions are inherently uncertain and are subject to numerous business, industry, market, regulatory, geo-political, competitive, and financial risks that are outside of Krane’s control. The inclusion of forward-looking statements herein should not be regarded as an indication that Krane considers forward-looking statements to be a reliable prediction of future events and forward-looking statements should not be relied upon as such. Neither Krane nor any of its representatives has made or makes any representation to any person regarding forward-looking statements and neither of them intends to update or otherwise revise such forward-looking statements to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying such forward-looking statements are later shown to be in error. Any investment strategies discussed herein are as of the date of the writing of this presentation and may be changed, modified, or exited at any time without notice.
Disclosure: Interactive Brokers
Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from KraneShares and is being posted with permission from KraneShares. The views expressed in this material are solely those of the author and/or KraneShares and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.
Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.
There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.
Disclosure: Futures Trading
Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.