Tencent Rumored Meituan Sale Weighs On Hong Kong, Can The China Real Estate Phoenix Rise From The Ashes?

Key News

Asian equities were largely higher as the Philippines had a strong day while Japan and Hong Kong were off.

Hong Kong was up through mid-day/intra-day with a high of +0.66% when a Reuters article was released stating that Tencent (700 HK), which gained +0.87% overnight, plans to sell its $24B/17% ownership stake in Meituan (3690 HK) via a block trade, according to “four sources with knowledge of the matter”. Loose lips may sink ships, but they pummeled Meituan, which fell -9.07%, and the entire internet and Hong Kong market. Block trades are usually made at a discount to the current market price while raising China’s internet regulatory fears, which had largely subsided.

Kuaishou (1024 HK) had a large investment from Tencent as it sank -4.39% while US-listed Pinduoduo (PDD), Tesla (TSLA), and Spotify (SPOT) could see weakness today. Is the article true? Tencent spun off/didn’t’ sell its stake in JD.com to shareholders earlier this year though it did sell down its stake in Singapore-based e-commerce company Sea (SEA US). Meituan stock is down significantly over the last year though a sale would still be highly profitable. Nothing from Tencent officially, though the head of the PR team denied the story on Chinese social media after the market’s close.

Hong Kong short sale volume was in-line local volume though Hong Kong-listed internet names, for the most part, saw their daily short trading fall today, indicating a potential covering on today’s weakness. Mainland investors bought Tencent but in small size as they sold Meituan but in small size via Southbound Stock Connect. Once again, the Hong Kong market took the brunt of the news harder than the Mainland which closed flat for the day.

Worth noting that real estate was the best performer in China +0.92% and Hong Kong +5.29% though short covering likely was a factor in the Hong Kong move. There are reports that new bonds issued by property developers to underwrite finishing of projects will be backed/guaranteed by state-owned enterprises. Remember yesterday’s MLF and OMO interest rate cuts helps the real estate sector along with the broader economy. As one Mainland article noted “…the signal that the regulatory authorities support the reasonable financing needs of real estate enterprises has gradually become obvious.” I haven’t had a chance, but I would guess Asia’s US $ high yield market had a good day today! It will be interesting to see if this market can make a comeback as it has taken a beating.

Chinese Treasury bonds had another strong day as China’s ten-year Treasury yield fell to 2.63% versus a year ago’s yield of 2.88%. Not many bond markets (any?) have appreciated over the last year. CNY was off -0.2% overnight versus the US $ to 6.78.

The Hang Seng and Hang Seng Tech declined -1.05% and -2.03% on volume +33% from yesterday which is 74% of the 1-year average. 211 stocks advanced while 252 stocks declined. Hong Kong short sale turnover increased +25% from yesterday which is 74% of the 1-year average as short turnover accounted for 17% of turnover.

Value and growth factors were mixed as were size factors (large versus small). Top sectors were real estate +5.29%, utilities +1.98%, and industrials +0.39% while discretionary -2.98%, tech -1.64%, and energy -1.49% fell respectively. Top sub-sectors were all real estate related and construction related such as property management stocks and cement stocks while travel related sub-sectors and high private equity held stocks were among the worst. Southbound Stock Connect volumes were moderate as Mainland investors sold -$249 million of Hong Kong stocks including Meituan, Kuaishou, and Li Auto though Tencent was bought.

Shanghai, Shenzhen, and STAR Board were mixed +0.05%, +0.43% and -0.56% on volume +4% from yesterday which is 96% of the 1-year average. 2,581 stocks advanced while 1,841 stocks declined. Top sectors were real estate +0.92%, industrials +0.53%, and energy +0.52% while healthcare -1.34%, tech -0.93%, and materials -0.78% were down. Top sub-sectors included port, chicken, wind, and solar electricity generators while among the worst sub-sectors were rare earth, precious metals, and semis. Northbound Stock Connect volumes were light/moderate as foreign investors bought $160 million of Mainland stocks. Treasury bond prices had another strong day, CNY depreciated -0.2% versus the US $ to 6.78 from 6.76 and copper was off touch.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.79 versus 6.77 Yesterday
• CNY/EUR 6.87 versus 6.90 Yesterday
• Yield on 10-Year Government Bond 2.64% versus 2.66% Yesterday
• Yield on 10-Year China Development Bank Bond 2.82% versus 2.84% Yesterday
• Copper Price -0.29% overnight