Tencent Rebounds as NetEase Beats Expectations

Key News

Asian equities followed US equities south as a less hawkish US Fed still means rate hikes in September and November.

Pakistan was closed for Al-Hijra, which is also known as the Islamic New Year. It was fairly quiet overnight as Hong Kong’s most heavily traded stocks by value were Tencent, which gained +3.1% on a positive outlook for the remainder of the year following yesterday’s earnings, Alibaba, which fell -2.32%, and Meituan, which gained +0.65%, after Tencent denied reports of its plans to sell its stake in the food delivery and E-Commerce discount platform.

Hong Kong was off on light volumes, which were only 67% of the 1-year average though short sellers pressed their bets as short sale turnover increased +21% from yesterday, which is 76% of the 1-year average as short sale turnover accounted for 19% of Hong Kong’s total turnover. Hong Kong internet stocks all saw increases in short sale turnover from yesterday, including the three most heavily shorted by size: Tencent (15% today versus 11% yesterday), Alibaba (22% today versus 13% yesterday), Meituan (23% today versus 16% yesterday). NetEaseNTES
, which fell -1.59%, was the 10^th most heavily shorted stock as 35% of its turnover was short versus 29% yesterday.

NetEase reported after the Hong Kong close today, beating on the big three as revenue increased +12% year-over-year (YoY) to RMB 23.159 billion versus an expected RMB 23.037 billion, adjusted net income increased +49% year-over-year to RMB 5.291 billion versus an expected RMB 4.847 billion, and adjusted earnings per share increased +53% YoY to RMB 8 versus an expected RMB 6.15. It is going to be ugly for those short NetEase.

Light summer volumes along with negative headlines make it hard for big asset managers to buy these stocks making for a ripe environment for shorts. Mainland stocks were off today on decent August volumes with growth/clean technology ecosystem stocks outperformed on news nine government agencies, including the NDRC and Ministry of Science and Technology, will support technologies helping in peak carbon efforts. STARAR
Board, where many growth stocks list, gained today as Shanghai and Shenzhen were off. Chinese Treasury bonds had another strong day which is good for my personal brokerage account though I don’t think many others are enjoying this bond rally. CNY was off a touch versus the US $ though a Mainland broker noted CNY is at the top of the range. We shall see! Yes, covid is all of China and Hong Kong but guess what? No city lockdowns! Yes, China has a heatwave causing some plants in Sichuan providence to close/limit hours as electricity is directed to air conditioners.

The Hang Seng and Hang Seng Tech fell -0.8% and -1.09%, respectively, on volume +6% from yesterday, which is 67% of the 1-year average. Only 79 stocks gained while 385 fell. Hong Kong short sale turnover jumped +21% from yesterday, which is 76% of the 1-year average, as short sale turnover accounted for 19% of turnover. Growth and value factors were mixed as large caps “outperformed” small caps. Top sectors were communication +1.41%, healthcare +0.49%, and staples +0.3% while real estate -1.85%, discretionary -1.72%, and materials -1.49%. Top sub-sectors were tech plays such as AI, big data, and virtual reality, while TikTok ecosystem stocks, auto, liquor, and online education were among the worst. Southbound Stock Connect volumes were light as Mainland investors bought $87 million of Hong Kong stocks today while Tencent, Meituan, and Kuiashou had small net selling.

Shanghai, Shenzhen, and STAR Board diverged –0.46%, -0.26%, and +1.26%, respectively, on volume -2% from yesterday, which is 99% of the 1-year average.1,758 stocks advanced, while 2,764 stocks declined. Growth factors outperformed value factors as small caps outperformed large caps. Tech was the only positive sector +0.61%, while healthcare -2.02%, communication -2%, and utilities -1.71%. Top sub-sectors include solar, battery, and semis, while liquor, pork, chicken, restaurants, and biotech were among the worst. Northbound Stock Connect volumes were light/moderate as foreign investors sold -$679 million of Mainland stocks as foreign investors bought Kweichow Moutai and Longi Green Energy while selling CATL, BYD, and Sungrow in small size. Treasury bond prices had another strong day. CNY eased -0.14% to 6.79 versus the US dollar and copper was off -0.87%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.79 versus 6.78 Yesterday
• CNY/EUR 6.92 versus 6.89 Yesterday
• Yield on 10-Year Government Bond 2.58% versus 2.61% Yesterday
• Yield on 10-Year China Development Bank Bond 2.78% versus 2.81% Yesterday
• Copper Price -0.87% overnight