Financial Regulator Reform Gives Foreign Investors Pause

Key News

Asian equities were mixed but mostly lower overnight as Hong Kong underperformed as foreign investors expressed concerns over a reshuffling of financial regulators in China.

At the “two sessions” meetings, the first meetings of the 14^th National Party Congress (NPC) taking place this week, officials announced the reform of major financial regulators. The China Banking and Insurance Regulatory Commission (CBIRC) will be absorbed into a new agency under the China Securities Regulatory Commission (CSRC), which will be overseen directly by the state council. Meanwhile, in addition to its new insurance oversight role, the CSRC will also take on new duties including heightened investor protection.

The major revamp of the most important financial regulators in the country is leading to concerns of the further concentration of power. While a centralizing move, we believe the reforms could be positive as they could simplify the regulatory landscape. Furthermore, Mainland investors did not seem to care as Shanghai and Shenzhen were flat overnight.

The lack of a significant stimulus announcement from the “two sessions” was also disappointing to some. However, officials may simply have a great deal of confidence in the economic recovery that is already underway. Furthermore, it is important to remember that the key point of these meetings will be to install Xi’s new deputies, who will, in turn, make policy.

Hong Kong Television Broadcasts (511 HK) rose +88% overnight on shareholder activism and an announcement that the TV station would be partnering with Alibaba’s Taobao on livestreaming. Alibaba’s Taobao marketplace celebrates its 20^th anniversary this year.

The Ministry of Commerce stated that it was willing to receive US Secretary of Commerce Gina Raimondo, who expressed an interest in visiting China.

JD.com will report Q4 earnings tomorrow, which will be an important release because the company’s shares have underperformed the internet space due to concerns over high subsidies for customers to deal with high competition.

The Hang Seng and Hang Seng Tech indexes fell -2.35% and -3.24%, respectively, on volume that decreased -8% from yesterday. The top-performing sectors overnight were telecom, consumer staples, and utilities. Meanwhile, health care, technology, and consumer discretionary were among the worst-performing sectors. Value factors mostly outpaced growth factors. Mainland investors bought a net $235 million worth of Hong Kong stocks overnight via Southbound Stock Connect.

Shanghai, Shenzhen, and the STAR Board diverged to close -0.06%, 0.29%, and 0.44%, respectively, on volume that decreased -23% from yesterday. The top-performing sectors overnight were communications, technology, and real estate. Meanwhile, energy, consumer staples, and financials were among the worst-performing sectors. Growth and value factors were mixed in terms of relative performance. Foreign investors bought a net $87 million worth of Mainland stocks overnight via Northbound Stock Connect.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.95 versus 6.97 yesterday
• CNY per EUR 7.34 versus 7.35 yesterday
• Yield on 10-Year Government Bond 2.88% versus 2.87% yesterday
• Yield on 10-Year China Development Bank Bond 3.08% versus 3.06% yesterday
• Copper Price -1.16% overnight