Hong Kong Internet Stocks Rally On Didi Follow Through & HFCAA Window Potentially Not Shortening

Key News

Asian equities had a strong performance overnight though we should curb our enthusiasm slightly as volumes were light.

Hong Kong internet stocks had a strong night following yesterday’s Didi news which should put its regulatory oversight behind the company and allow the company to resume full operations. For the second time in a week, SEC Chair Gensler spoke to Bloomberg about the ongoing discussions to resolve the Holding Foreign Companies Accountable Act. It is feasible that Gensler was trying to communicate with Congress that shortening the HFCAA delisting window from three years to two years would be a mistake. In visiting with our political research firm yesterday, ACG Analytics, they believe the upcoming semiconductor subsidy bill doesn’t include shortening the HFCAA window at this juncture. That is a good thing as it allows the two sides to find a way to put this issue to bed.

Also helping the Hong Kong internet space is a top Mainland portfolio manager reported raising his stake in both Alibaba and Tencent. Hong Kong volumes were light but worth noting the Hong Kong short sale volume declined significantly overnight. Hong Kong internet stocks remain heavily shorted though there must be a little nervousness based on sentiment improving post-Didi news. We also have Q2 earnings around the corner which could be a catalyst for the space.

Mainland China had a strong day on light volumes as the Shanghai closed above 3,300 and Shenzhen above 2,200 led by defense stocks following Pelosi’s proposed Taiwan trip. The July 1 and 5-year loan prime rate was left unchanged as anticipated. The most heavily traded Mainland stocks differed from the usual cast of heavily held foreign favorites. Foreign investors were net buyers of Mainland stocks today to the tune of $544mm following yesterday’s sell off.

Covid cases in Hong Kong and China continue to rise but still no city-wide lockdowns. At this juncture, there continues to be evidence that the zero covid policy has been adjusted. Chatter that Macao casinos could reopen Sunday.

The Hang Seng and Hang Seng Tech gained +1.11% and +1.56% respectively on volume +6.34% from yesterday which is 63% of the 1-year average. 307 stocks advanced while 157 declined. Hong Kong short sale turnover declined -9.79% from yesterday which is 56% of the 1-year average as short sale turnover accounted for 14% of Hong Kong turnover. Growth factors outperformed today as small caps outperformed large caps. Top sectors were discretionary +2.04%, healthcare +1.96%, and communication +1.96% while utilities and real estate were off -0.4% and -1.55%. Top sub-sectors were education related and online video while retails stocks were among the worst. Southbound Stock Connect volumes were light as Mainland investors were net buyers of Hong Kong stocks with Tencent and Meituan seeing net buying while Li, Xpeng, and Kuaishou were small net sells.

Shanghai, Shenzhen, and STAR Board gained +0.77%, +0.71%, and +1.66% on volume -4.47% from yesterday which is 88% of the 1-year average. 2,877 stocks advanced while 1,601 stocks declined. Growth factors outperformed value while small caps outperformed large caps. Top sectors were healthcare +1.03%, industrials +0.68%, and industrials +0.64% while real estate -0.51%, utilities -0.45%, and discretionary were flat. Top sub-sectors were military/defense industries in addition to electrical utilities. Northbound Stock Connect volumes were light as foreign investors bought $544mm of Mainland stocks. Treasury bonds had a strong day, CNY eased versus the US $ to 6.75 and copper slipped -0.23%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.76 versus 6.74 yesterday
• CNY/EUR 6.90 versus 6.92 yesterday
• Yield on 10-Year Government Bond 2.77% versus 2.79% yesterday
• Yield on 10-Year China Development Bank Bond 3.04% versus 3.06% yesterday
• Copper Price -0.23% overnight