Alibaba Confirms TikTok Partnership, Loan Prime Rate Sees Asymmetric Cut

Key News

Asian equities had a rough start to the week following Friday’s US equity selloff except for China, Singapore, and New Zealand, which managed positive returns today. Asian investors were risk-off overnight as all eyes will be on Jackson Hole and what Jay Powell says about the pace of interest rate hikes in advance of the November midterm elections. We will see whether Powell can navigate the financial equivalent of Corbet’s Couloir, the ski town’s most famous steep chute.

We had several positive catalysts on Friday, including a confirmation of the partnership between Alibaba and TikTok, or “Douyin” in China, which was confirmed this morning. The latest EV sales tax exemption, this time through year-end 2023, announced Friday, was also a catalyst in last night’s trading. Friday’s massive options expiration weighed on US stocks, including US-listed Chinese stocks.

Prior to today’s market open, the 1- and 5-year loan prime rates (LPRs) were lowered from 3.7% to 3.65% and 4.45% to 4.3% versus expectations of 3.6% and 4.35%, respectively. Mortgage rates are based on the 5-year LPR, making this release another strong sign of support for the real estate sector. This morning, Bloomberg is reporting that $29.3 billion worth of “special loans to ensure stalled housing projected are delivered to buyers” will be extended to key developers. Previously, it was announced that property developers’ bonds would be backed by the government. Asia’s US dollar bond market had a high weight to Chinese property developers, which has led to a steep sell-off this year, though we should see some stability coming back following these announcements.

The Mainland market closed higher today on the LPR cuts, while Hong Kong gave up early gains. It is interesting that Hong Kong-listed real estate developers were up +1.34% overnight while Mainland real estate developers were down -0.44%. Friday’s China Last Night had a deep dive on short selling in Hong Kong that I recommend reading. Remember that Mainland China is owned by Chinese investors versus Hong Kong, which is primarily owned by foreign investors. All the negative media coverage, combined with a thin summer tape, has allowed short sellers to push their bets. Hong Kong’s most heavily traded stocks were also the most heavily traded by short sellers, including Tencent, which fell -1.4% despite restarting its stock buyback, Meituan, which gained +0.71%, and Alibaba HK, which fell -1.12% despite confirming the Tik Tok partnership. JD.com HK gained +0.74% and Kuaishou gained +0.74% prior to tomorrow’s earnings release, while Baidu HK gained +0.94% following Friday’s post-close announcement that the stock will be added to the Hang Seng Index. Financials were off in both markets as China’s Treasury yield curve flattened.

Electric utility stocks have struggled as China’s heatwave has hit hydroelectric power-dependent but drought-stricken Sichuan province, leading to electricity shortages.

China’s clean technology ecosystem, electric vehicles stocks, solar stocks, and wind stocks all had a good day in the Mainland market as Hainan Island announced the phase-out of new gas car sales by 2030. Hong Kong-listed electric vehicle names were all lower, a sign of the poor foreign sentiment. One factor is the strength of the US dollar as the Bloomberg JP Morgan Asia Dollar Index hit a 52-week low for the 4^th day in a row as CNY slid to 6.84 versus the US dollar.

The Hang Seng and Hang Seng Tech indexes lost -0.59% and -0.96%, respectively, on volume that was +1% higher than Friday, which is 63% of the 1-year average. 218 stocks advanced while 242 declined. Hong Kong short sale turnover declined -8.96% from Friday, which is 68% of the 1-year average, as short sale turnover accounted for 18% of total turnover. Growth and value factors were mixed as large caps “outperformed” (i.e. fell less) than small caps. The top performing sectors were materials, which gained +1.46%, real estate, which gained +1.34%, and energy, which gained +0.9%. Meanwhile, utilities fell -4.92%, information technology fell -2.41%, and communication services fell -0.7%. The top performing sub-sectors were fast food restaurants, sporting goods, cobalt, and online education, while electrical utilities, gas, rare earths, and the Apply ecosystem were among the worst performing. Southbound Stock Connect volumes were light as Mainland investors bought $169 million worth of Hong Kong stocks as Tencent was net bought by a small margin and Meituan was net sold again.

Shanghai, Shenzhen, and the STAR Board were mixed, closing +0.61%, +0.92%, and -0.11%, respectively, on volume that decreased -8.47% from Friday, which is 97% of the 1-year average. 2,603 stocks advanced, while 1,861 stocks declined. The top performing sectors were materials, which gained +2.63%, energy, which gained +2.03%, and discretionary, which gained +1.37%, while utilities fell -0.79%, financials fell -0.73% and real estate fell -0.44%. The top performing sub-sectors included lithium, rare earths, and EV battery stocks, while electric utilities, brokers, and semiconductors were among the worst. Northbound Stock Connect volumes were moderate as foreign investors bought $127 million worth of Mainland stocks. Treasury bonds were off as the curve flattened, CNY lost -0.33% versus the US dollar to end at 6.84 CNY/USD, and copper gained +1.01%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.84 versus 6.82 Friday
• CNY/EUR 6.84 versus 6.85 Friday
• Yield on 1-Day Government Bond 1.08% versus 1.08% Friday
• Yield on 10-Year Government Bond 2.59% versus 2.59% Friday
• Yield on 10-Year China Development Bank Bond 2.79% versus 2.79% Friday
• Copper Price +1.01% overnight