Alibaba’s Ant Could Be Marching Toward An IPO, CNY’s Remarkable Ghost Rally

Key News

Asian equities had a strong day as Japan was on holiday for Respect for the Aged Day.

Jack Ma’s voting rights in financial technology giant Ant Group were lowered to 6.2% from 53.4%, though he still has a significant economic interest in the company. Alibaba jumped +8.66% on the news, becoming the most heavily traded Hong Kong stock by value today. While Ant downplayed the potential for an IPO, the move, along with the company adding independent board members, makes the company more appealing to investors as “…no shareholder, alone or jointly with other parties, will have control over Ant Group.” Exchanges in Mainland China and Hong Kong have rules that require a waiting period of one year or more after a change in control prior to an IPO, which raises the attractiveness of a US listing. Time will tell!

Alibaba, along with several other companies, including Tencent, which gained +3.61%, had further analyst price target upgrades on China’s reopening as Hong Kong-listed internet stocks had a strong day except for Meituan, which fell -1.15%, and JD.com, which was flat.

This weekend marked the start of the world’s greatest migration in advance of the Lunar New Year holiday. Over the weekend, we saw the first travel between Hong Kong and Mainland China in nearly three years, while domestic and international flights from China are ramping up. Hong Kong had a strong day, with advancers outpacing decliners significantly, while all sectors were positive, except for real estate and the Hang Seng Index, which closed above the 21,0000 level. Remember that many active global and Emerging Markets funds are underweight China relative to the MSCI Emerging Markets Index.

Today’s Wall Street Journal had an article on foreign investors selling Chinese bonds in 2022 while equity inflow was off 2021’s level. The timing of the article is bad as foreign investors bought $1.14 billion worth of Mainland stocks today, following last week’s $2.9 billion, though clearly the investors referenced in the article are poor market timers as CNY rallied versus the US dollar, gaining +0.67% to close at 6.78 CNY per USD. It is amazing how little media coverage CNY’s rally versus the US dollar has garnered. However, I shouldn’t be surprised as the Asia US dollar high-yield bond rally is garnering no coverage.

Shanghai and Shenzhen rallied on continued reopening and policy support as both indices near potential resistance levels of 3,200 and 2,080. Berkshire Hathaway sold 1.06 million shares of BYD, which fell -1.06%. The storied investor’s sale overnight marks its 7^th share sale, bringing the total number of shares sold to 60 million, which reduces Berkshire Hathaway’s position to 13.97% of the company. A Mainland media source noted that the company has provided no explanation for the reduction. Trina Solar gained +1.7% after pre-announcing that its 2022 financial results will include a net profit increase between 89% to 122%. The Ministry of Finance and State Administration of Taxation announced a reduction in the VAT for smaller taxpayers in a consumption-friendly move.

Our Post Party Congress Policy Pivot on the Big Three (US-China, Zero COVID, and Real Estate) continues to play out. Prior to moving back to China following his promotion, China’s Ambassador to the US, Qin Gang, wrote a great letter in the Washington Post that is worth reading. Over the weekend, it was announced that the former spokesperson for the Foreign Ministry, who had been dubbed a “wolf warrior,” had been reassigned. While we do not yet know the identity of the new spokesperson, the removal is an interesting one!

The Hang Seng and Hang Seng Tech indexes gained +1.89% and +3.15%, respectively, on volume that increased +5.49% from Friday, which is 124% of the 1-year average. 371 stocks advanced, while 124 stocks declined. Main Board short sale turnover increased +0.49% from Friday, which is 105% of the 1-year average, as 15% of turnover was short. Growth factors outpaced value factors as small caps outpaced large caps. The top-performing sectors included materials, which gained +5.23%, consumer discretionary, which gained +3.48%, and communication services, which gained +3.37%, while real estate was the only down sector, falling -1.44%. The top-performing subsectors were food, materials, and retail, while autos, real estate, and household/personal products were the worst. Southbound Stock Connect volumes were moderate/light as Mainland investors sold -$156 million worth of Hong Kong stocks as Meituan was the most heavily traded within the program, Tencent was a small net buy, and Xpeng was a small net buy.

Shanghai, Shenzhen, and the STAR Board diverged to close +0.58%, +0.68%, and -0.24%, respectively, on volume that decreased -3.7% from Friday, which is 88% of the 1-year average. 2,814 stocks advanced, while 1,678 stocks declined. Value factors outpaced growth factors as small caps outpaced large caps slightly. The top-performing sectors were consumer staples, which gained +3.13%, materials, which gained +2.64%, and communication services, which gained +2.23%, while utilities and real estate were off -0.04% and -0.06%, respectively. Northbound Stock Connect volumes were moderate as foreign investors bought $1.14 billion worth of Mainland stocks. CNY gained +0.67% versus the US dollar, closing at 6.78, Treasury bonds sold off, and copper gained +0.85%.

Major Chinese City Mobility Tracker

Traffic and metro usage continue to rebound. Meanwhile, several provinces showed an increase in new cases. Being such a large country geographically, it should be no surprise that different cities and provinces are in different stages of getting through peak infections, which could take some time.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.77 versus 6.83 yesterday
• CNY per EUR 7.27 versus 7.26 yesterday
• Yield on 1-Day Government Bond 1.02% versus 0.92% yesterday
• Yield on 10-Year Government Bond 2.84% versus 2.83% yesterday
• Yield on 10-Year China Development Bank Bond 2.96% versus 2.96% yesterday
• Copper Price +0.85% overnight