Baidu’s Ernie Bot Powers Hong Kong Rise

Key News

Asian equities were mixed as North Asia (Japan, South Korea, Taiwan, China & Hong Kong) posted gains while South Asia (India, Singapore, Indonesia, Malaysia, the Philippines, etc.) posted losses.

No reason to bury the headline as Baidu HK gained +15.33% on solid volume after confirming the March launch of their ChatGPT-like AI chatbot called Ernie Bot. Baidu took the profits from their search business and invested in new areas, including their Apollo EV technology platform and AI. They don’t often get credit for this strategy though two years ago, they mentioned that non-search revenue would exceed search revenue in a few years.

Hong Kong’s most heavily traded were Tencent +0.85%, Baidu HK +15.33%, Alibaba HK +1.55%, and Meituan -0.24% as internet names largely outperformed after yesterday’s “deflating” performance of China ADRs. Yesterday was an opportunity for underweight active managers to buy the dip! Volumes were light overnight though short turnover fell significantly to only 13% of total turnover.

Real estate was the top performer in Mainland China as the removal of purchasing caps in certain areas of Wuhan is viewed as the first in what will become a trend. Hong Kong and Mainland stocks are taking a breather after a robust four months.

Tonight we have Yum China reporting earnings with Q1 outlooks providing a catalyst more so than Q4’s financial results.

The Hang Seng and Hang Seng Tech gained +0.36% and +1.15% on volume -23.17% from yesterday, 82% of the 1-year average. 258 stocks advanced, while 201 declined. Main Board short turnover declined -42.35% from yesterday, which is 60% of the 1-year average. Growth factors outperformed value factors as small caps outpaced large caps. The top sectors were communication +2.26%, healthcare +0.81%, and energy +0.78%, while tech -0.31% and staples -0.13%. The top sub-sectors were software, media, and energy, while food, consumer services, and business services were among the worst. Southbound Stock Connect volumes were light as Mainland investors bought $2mm of Hong Kong stocks with Tencent and Meituan small net buys.

Shanghai, Shenzhen, and STAR Board were mixed +0.29%, +0.36%, and -0.42% on volume -3.35% from yesterday, which is 93% of the 1-year average. 3,213 stocks advanced, while 1,400 stocks declined. Value factors outperformed growth factors as small caps outpaced large caps. The top sectors were real estate +1.7%, utilities +1.29%, and energy +0.51%, while tech -0.57%, healthcare +0.49%, and communication +0.28%. The top sub-sectors were internet, environmental protection, and precious metals, while office supplies, software, and catering were among the worst. Northbound Stock Connect volumes were light as foreign investors sold -$568mm of Mainland stocks. CNY was off slightly versus the US dollar, Treasury bonds rallied, and copper and steel were down overnight.

Major Chinese City Mobility Tracker

A picture tells a thousand words. It reminds me of a 1980s movie line: “They’re back.”

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.79 versus 6.80 yesterday
• CNY per EUR 7.27 versus 7.31 yesterday
• Yield on 10-Year Government Bond 2.90% versus 2.90% yesterday
• Yield on 10-Year China Development Bank Bond 3.05% versus 3.06% yesterday
• Copper Price -0.70% overnight
• Steel Price -0.52% overnight