Chairman Yi Huiman’s Weekend Speech Promising, Other Headlines Contribute To Weekend Weakness

Key News

Asian equities had a poor start to the week following an eventful news weekend. Covid risk continues to weigh on China markets as a lockdown in Guangzhou was announced.

On Saturday, CSRC Chairman Yi Huiman gave a speech at the Third Member Congress of the Association of Listed Companies. He stated that Shanghai and Shenzhen Stock Connect programs should “steadily expand” and that the CSRC should promote Sino-US audit audit supervision.” Currently, only dual primary stocks can be added to Connect, allowing mainland investors to buy Hong Kong-listed stocks, though secondary offerings will be added. He also stated, following last week’s announcement repealing the law that prevents the PCAOB from doing onsight audit reviews after a two-week comment period, that the CSRC should “Accelerate the implementation of new regulations on the supervision of companies’ overseas issuance and listing.” The CSRC should also “…promote Sino-US audit supervision cooperate to achieve results”. Very promising!

Unfortunately, Sunday was not a fun day, as several headlines circulated. Reports that mega-city Guangzhou, with a population 15 million, was also entering lockdown, significantly contributing to the overnight weakness.

Electric vehicle (EV) maker Nio announced that it would be limiting factory production, leading to a downdraft in the company’s shares.

The March inflation release was higher than anticipated as the PPI gained +8.3% year-over-year, driven by higher commodity prices, while the CPI saw a slight uptick from last month’s 0.9% to 1.5%.

On Sunday, the State Council released “Opinions of the Central Committee of the CCP of China and State Council on Accelerating the Construction of a National Unified Market.” The statement included the following “Eliminate the problems such as data monopoly of platform enterprise, and prevent the use of data, algorithms, and technical means to restrict competition.”

It is difficult to understand how much this news weighed on internet stocks, which were uniformly weak, though it may have had some impact. As we have said before, investors tend to “shoot first and ask questions later” when it comes to regulations. Some clarity on the use of algorithms could benefit the industry and allow for more sustainable growth in the future. Also, it is important to note that many of the announcements coming out from state organs are regarding measures that have already been implemented. These measures now need to be cemented into law, which means we will be hearing about them once again.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.37 versus 6.36 Friday
• CNY/EUR 6.96 versus 6.91 Friday
• Yield on 10-Year Government Bond 2.77% versus 2.75% Friday
• Yield on 10-Year China Development Bank Bond 3.01% versus 3.00% Friday
• Copper Price -0.16% overnight