Didi To Resume Normal Operations, Hong Kong Volumes Plummet

Key News

Asian equities posted mixed results on light volumes as summer doldrums kicked in. The WSJ reported that “according to people familiar with the issue,” Didi will be fined $1B, ending its investigation and allowing the company to resume full operations. According to the WSJ, the latter is more important than the former as the fine “would account for about 4% of Didi’s $27.3 billion total sales last year”. The article also states that Didi will relist in Hong Kong though I don’t see a filing.

Relatively quiet overnight though markets held up despite the potential for the US semiconductor bill moving forward, Nancy Pelosi stated she wants to visit Taiwan, and Janet Yellen is pushing the idea of “friend-shoring” while visiting South Korea. There are many problems in the world today, but I am not sure I would put these near the top. Apple’s ecosystem was off following yesterday’s news that Apple won’t replace staff if they leave. Sunny Optical and AAC Tech were off -3.69% and -3.12% on the news, which likely weighed on internet stocks. Hong Kong internet stocks were off on no news other than profit taking following yesterday’s strong move. Alibaba HK -2.89% saw an increase in short sale turnover to 30% of all volume traded. Shorts are likely pressing their bets, assuming prominent asset managers won’t come into the stocks. With Q2 earnings season around the corner, that might be setting up an epic short sale cover. Fingers crossed!

Volumes were very light in Hong Kong, including short sale turnover. Hong Kong EV stocks were off despite Mainland media coverage that the Chinese government is taking another look at EV purchase subsidies. Mainland markets held up better on slightly lower volume as yesterday’s news about mortgage relief lifted financials +0.5% though real estate was off -0.09%. The PBOC’s liquidity injection yesterday helped sentiment overnight. Electricity plays were off as heavy rains helped the recent heat wave in China, which weighed on clean energy plays such as solar and wind. Foreign investors sold a fairly healthy -$1.462B of Mainland stocks with growth sectors/stocks such as EV, solar, wind, battery, and discretionary plays all hitting. Hard to say what drove the move, but the political headlines might be a factor.

The Hang Seng and Hang Seng closed down -0.89% and -1.48% on volume down -27.66% from yesterday, which is just 60% of the 1-year average. 152 stocks advanced while 320 declined. Hong Kong short sale turnover fell by -36.82% from yesterday, which is 62% of the 1-year average as short sale turnover accounted for 17% of Hong Kong turnover. Value factors outperformed growth by a small margin as small caps outperformed large caps. Energy was the only positive sector +0.52% while tech -2.26%, discretionary -1.83% and utilities -1.31%. Shipping and logistic stocks were the top sub-sector along with cobalt and luxury goods, while the Apple ecosystem underperformed with biotech and semis. Southbound Stock Connect volumes were light as Mainland investors were net buyers of Hong Kong stocks, with Tencent seeing another decent day of buying while Meituan and Kuiashou were sold small.

Shanghai, Shenzhen, and STAR Board diverged +0.04%, +0.14%, and -0.7% on volume off -2.34% from yesterday, which is 92% of the 1-year average. 2,990 stocks advanced while 1,435 declined. Value factors outperformed growth factors, while small caps outperformed large caps. Top sectors were communication +1.21%, financials +0.5% and energy +0.27% while industrials -1.72%, healthcare -1.14% and utilities -0.86%. Tech sub-sectors were the top performers, such as software, hardware and cloud, and online gaming, while clean energy sub-sectors such as solar and wind were among the worst. Northbound Stock Connect volumes were light as foreign investors sold -$1.462B of Mainland stocks today. Treasury bonds were off minimally, CNY eased slightly versus the US $, and copper gained +2.13%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.74 versus 6.74 yesterday
• CNY/EUR 6.92 versus 6.84 yesterday
• Yield on 10-Year Government Bond 2.79% versus 2.78% yesterday
• Yield on 10-Year China Development Bank Bond 3.06% versus 3.05% yesterday
• Copper Price +2.13% overnight