Alibaba’s Ant Group Accepts Fine, Could An IPO Be Next, Week In Review

Week In Review

• June’s Caixin PMI came in slightly better than anticipated at 50.5 versus an expected reading of 50 and May’s 50.9.
• BYD gained +4.48% after selling 253,046 cars, which brings their first-half total to 1.25 million, with several new models coming out later this year. NIO gained +8.11% after selling 10,707 vehicles, Li Auto gained +8.49% after 32,575 sold, Xpeng gained +16.5%, Geely Auto gained +6.28%, Guangzhou Auto gained +6.42%, and Great Wall Motors gained +7.47%.
• Janet Yellen visited China amid discussions on limiting Chinese companies’ access to US cloud services providers, and China’s Ambassador Xie Feng met with President Biden at the White House over the weekend.
• Hong Kong-listed bank stocks had a very tough week for multiple reasons, which weighed down the broader markets.

Friday’s Key News

Asian equities ended a down week lower in advance of US employment data this morning.

This morning, US pre-market open, Reuters reported that the PBOC fined Ant Group $984 million (RMB 7.12 billion). Ant’s pulled IPO was due to their IPO prospectus not incorporating the effect of the soon-to-be-released regulation of the company and fintech peers. The pulled IPO had nothing to do with Jack Ma’s criticism of government regulators. Could news surrounding the company that marked the high water mark in the China internet industry also mark the bottom? Fingers crossed as it reminds me of the Allman Brothers Band’s song “Back Where It All Begins.” The Ant fine means an IPO could be on its way, which should help Alibaba monetize its 33% ownership. The rumor lifted Alibaba’s HK share class by +3.44% in one of the few bright spots for Hong Kong stocks today. Mainland financial media noted a statement from Ant Group stating, “After receiving the administrative penalty decision from the financial management department, we sincerely accept and resolutely obey this, and will further strengthen the level of compliance governance.”

Treasury Secretary Yellen’s visit to China kicked off with her meeting with US business leaders, which garnered media attention as she spoke about the unfair competition US companies face in China. My sarcastic side begs to ask, “How well are ZTE and Huawei doing in the US versus Tesla
TSLA
, Apple
AAPL
, GM, Exxon Mobil, and others in China?” More important were her subsequent meetings with Premier Li, where she reiterated the US’ goal isn’t decoupling but derisking followed by meetings with former Vice Premier Liu He and dinner with former senior banker Zhou Xiaochuan.

Climate czar John Kerry is expected to visit China next week as green shoots on the US-China political relationship focus on areas of easy agreement: economic ties and climate. Also headed to China is the PCAOB for the second round of auditor reviews that will include PWC
PWC
(Alibaba and Tencent’s auditor), E&Y (Baidu), and Deloitte (JD.com) having visited with KPMG (YUM China) in the fall. Yes, they will find deficiencies, but it should help the auditors adhere going forward. Remember, it was a quiet week due to the US holiday for Hong Kong though we had the “foreign freakout” with Hong Kong off more than China, though not as much as US-listed China ADRs yesterday. Interesting that Mainland investors appear to be reducing their holdings of Hong Kong-listed China/Hong Kong equity ETFs rather than individual stocks.

Today, Tencent was a strong net buy, though four ETFs were net sells as I’ll do more work for my weekend homework assignment. Mainland China was off in a quiet night though not nearly as much as Hong Kong. Premier Li’s State Council promise for more economic support failed to lift sentiment as it was all talk and no plan/actionable items. Shanghai closed just below 3,200 at 3,196, while Shenzhen is at 2,030. Mainland social media star Hu Xijin continues his promotion of investing in Mainland stocks though he picked a tough week to start investing for the first time. He appears to be trying to promote investing to China’s population, which would be a good alternative/compliment to traditional destinations of savings such as real estate, bank accounts, and the bond market. At a bare minimum, his entry point is telling us something!

The Hang Seng and Hang Seng Tech fell -0.9% and -1.21% on volume +2.23% from yesterday, which is 88% of the 1-year average. 113 stocks advanced, while 349 stocks declined. Main Board short turnover increased +4.27% from yesterday, which is 96% of the 1-year average, as 18% of turnover was short turnover. The value factor outperformed the growth factor as large caps outpaced small caps. Discretionary was the only positive sector gaining +0.16%, while utilities -2.95%, tech -2.39%, and staples -1.65%. The top sub-sectors were retailing, healthcare equipment, and household products, while auto, semis, and technical hardware were the worst. Southbound Stock Connect volumes were light as Mainland investors sold -$535 million of Hong Kong stocks while Tencent was a moderate/strong buy, Meituan a moderate/light buy, XPeng a small net buy, China Mobile and SMIC small net sells.

Shanghai, Shenzhen, and STAR Board fell -0.28%, -0.67%, and -1.02% on turnover -2.46% from yesterday, which is 88% of the 1-year average. 1,783 stocks advanced, while 2,815 stocks declined. Value factors outperformed growth factors as large caps outperformed small caps. The top sectors were utilities +0.74%, energy +0.72%, and financials +0.38%, while tech -1.13%, communication -0.73%, and discretionary -0.57%. The top sub-sectors were land transportation, agriculture, and retail, while computer hardware, power generation equipment, and semis were the worst. Northbound Stock Connect volumes were light/moderate as foreign investors sold -$624 million, with Kweichow Moutai a moderate/large net sell, Foxconn a very small net sell, and Yangtze Power a very small net buy. CNY gained +0.2% versus the US dollar to 7.23 while the Asia dollar index posted a small net gain. Treasury bonds were off, along with copper and steel.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.23 versus 7.23 Yesterday
• CNY per EUR 7.87 versus 7.87 Yesterday
• Yield on 10-Year Government Bond 2.64% versus 2.63% Yesterday
• Yield on 10-Year China Development Bank Bond 2.77% versus 2.78% Yesterday
• Copper Price -0.24% overnight
• Steel Price -0.67% overnight