Ant Group Fine Is Fine, PCAOB Increases Budget

Key News

Asian equities were mixed but mostly higher overnight as Hong Kong underperformed. US Defense Secretary Lloyd Austin met with his Chinese counterpart Wei Fenghe in Cambodia, signaling more communication is on the way following the G20.

China internet stocks listed in Hong Kong were lower overnight after news that Ant Group would be fined $1 billion by the People’s Bank of China (PBOC), China’s central bank. The fine represents the conclusion of the 2-year regulatory review period for the lender. Given the company’s size, this fine is a slap on the wrist though significant. Analysts are saying that this could also be a step in the right direction when it comes to successfully marking the firm as a financial holding company and reviving its IPO, which was postponed in November 2020.

The PBOC set its Yuan fixing rate at 7.17 CNY per USD versus the prior 7.13, indicating that the central bank expects the US dollar to remain strong. While the Yuan’s long-term trajectory is appreciation, a stronger dollar also benefits China’s exports, which is important in a time of slowing economic growth in the developed world.

Xi Jinping met with the newly instated Italian Prime Minister Giorgia Meloni in Bali last week, and the two agreed in principle to a partnership on trade and technology. The conservative Italian prime minister is likely to continue to improve ties between China and Italy, given her Euro-skeptic leanings. Italy is the only Western European nation to have signed a memorandum of understanding under China’s Bent & Road Initiative.

The PCAOB published its proposed 2023 budget to the SEC. The auditor of auditors has requested a budget of $349.5 million for next year, up from last year’s $310 million, 2021’s $287 million, and 2020’s 256 million. As a general, uneducated observation, that is a healthy increase of +36% from 2020 to next year. (I love USAFacts.org, which gives a data-driven look at the USA and government finances) I suppose the PCAOB staff is comprised of financial professionals, which requires higher pay. Traveling to and from Hong Kong, along with food and hotels, is expensive. Maybe there will be more Hong Kong audits next year, which would require more travel and expenses and, therefore, a higher budget.

The Hang Seng and Hang Seng Tech indexes declined -1.31% and -3.21%, respectively, on volume that increased +15% from yesterday. Internet and technology underperformed along with growth overall as value sectors such as energy and financials outperformed. Real estate stocks were also lower following a significant uptick last week on positive policy news. Mainland investors sold a net -$744 million worth of Hong Kong stocks via Southbound Stock Connect.

Shanghai, Shenzhen, and the STAR Board closed 0.19%, -1.29%, and -1.42%, respectively, on volume that increased +4% from yesterday. Growth stocks were lower, as evidenced by the decline in Shenzhen and STAR, while value plays such as construction, materials, and financials outperformed. Foreign investors sold a net -$106 million worth of Mainland stocks via Northbound Stock Connect.

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.14 versus 7.17 yesterday
• CNY per EUR 7.33 versus 7.34 yesterday
• Yield on 1-Day Government Bond 1.10% versus 1.10% yesterday
• Yield on 10-Year Government Bond 2.83% versus 2.82% yesterday
• Yield on 10-Year China Development Bank Bond 2.94% versus 2.93% yesterday
• Copper Price +0.60% overnight