A Quiet End To A Wild Week, Week In Review

Week in Review

• This week saw heightened volatility in the internet sector as the Hang Seng TECH Index was down over -11% on Monday as Asian investors appeared to be taking the Holding Foreign Companies Accountable Act (HFCAA) and its implications into consideration for the first time.
• On Wednesday, Hong Kong and then US-listed internet ADRs rallied on positive statements from Vice Premier Liu He on internet regulations, working with the SEC to allow audit inspections, and the country’s covid policies. The CSI Overseas China Internet Index surged nearly +40%.
• The real estate sector was also lifted on positive comments from policymakers this week.
• In this week’s video update, Xiabing Su takes us on the ground in Shanghai to investigate the proliferation of electric vehicles (EVs), explore Nio’s luxury home store, and interview an EV owner.

Key News

Asian equities ended a wild week on a positive note. It was a quiet night on the news front as Biden and Xi will speak this morning.

There are reports that Tencent will spin off its WeChat Pay, like Alibaba’s spin-off of Ant Group, according to “people familiar with the matter.” Tencent rallied on the afternoon news, curtailing losses to -2.21% from -4.87%.

The Hang Seng Index was off -0.41% while the Hang Seng TECH Index was down by -1.92% as foreign investors appear to be looking for a follow-up to Liu He’s speech. Volume was off -21% from yesterday, which is still 158% of the 1-year average, while breadth was decent with 2 advancers for every 1 declining stock. Hong Kong’s short sale volume fell -by -25%, though is still running at twice the 1-year average. Today was a bit of a value rally as energy gained +1.94%, materials gained +1.68%, and financials gained +1.61% while growth sectors were off on profit-taking after Wednesday’s monster move. Tencent saw a small net sale in Southbound Stock Connect while Meituan saw a small net buy.

Mainland investors were less skeptical of comments made by the #3 person in China’s government as Shanghai gained +1.12%, Shenzhen gained +0.56%, and the STAR Board gained +0.14% on volume that was down -22% from yesterday, which is 94% of the 1-year average as 3,278 stocks gained and 1,084 stocks declined. Real estate was the best performer, again, gaining +5.95% following its mention during Vice Premier Liu He’s speech. Foreign investors bought $1.33 billion worth of Mainland stocks today via Northbound Stock Connect. CNY was off versus the US dollar while bonds gained and copper gained +0.86%.

Real estate stocks’ rally this week reminded me of all the Western news coverage of Evergrande, which was supposed to be China’s Lehman moment. That didn’t quite pan out, did it? I would be skeptical of the media coverage as they got Evergrande wrong along with many other China issues. Evergrande has a bond maturing next week. Currently, that bond trades at $11, demonstrating that investors are skeptical of it being paid back. We’ll find out next week!

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.36 versus 6.35 yesterday
• CNY/EUR 7.02 versus 7.04 yesterday
• Yield on 1-Day Government Bond 1.49% versus 1.51% yesterday
• Yield on 10-Year Government Bond 2.79% versus 2.79% yesterday
• Yield on 10-Year China Development Bank Bond 3.05% versus 3.05% yesterday
• Copper Price +0.86% overnight