Value Rally In Honor Of Buffet’s Conference & Munger’s China Comments

Key News

Asian equities had a strong start to the week following the US market rally Friday.

It is fitting that both Mainland China and Hong Kong were led higher by value stocks and sectors following this past weekend’s Berkshire Hathaway annual meeting in Omaha. It is also worth noting that Charlie Munger opined on why the US and China need to get along and extolled the benefits of trade. As our friend Brian pointed out, you don’t see a great deal of media ink spilled on their balanced China comments, do you? Coincidentally, after the close, Berkshire filed that their BYD stake was trimmed to just below 10%.

Financials and energy were the two best-performing sectors in Hong Kong and Mainland China as Hong Kong’s most heavily traded stocks by value were China Construction Bank, which gained +3.68% in a rare dethroning of Tencent, Tencent, which fell -0.58%, Bank of China, which gained +4.59%, Alibaba, which gained +0.37% on chatter that their logistics unit will IPO in Hong Kong too, ICBC, which gained +4.47%, and energy giant CNOOC, which gained +5.83%.

Over the last few weeks, we have seen SOEs outperforming, driven by government “reform”/kick in the pants. Today’s move in financials was driven by investors’ growing attraction to the sector’s low valuations and high dividend yields. For example, China Construction Bank (CCB) has a dividend yield of 7.84%, which is even after today’s move versus China’s 10-Year Treasury bond yield of 2.74%. Meanwhile, CCB’s Mainland share class gained +5.24% today and has a dividend yield of 5.53% as Mainland investors are less afraid of banks, apparently.

Energy stocks were driven higher by a bounce in oil overnight. Hong Kong-listed internet stocks were mixed overnight as we enter earnings season with JD.com’s financial results due to be announced Thursday. Reopening plays were weak overnight for no clear reason. There was a fair amount of negative geopolitical news overnight, though the fact that markets including Hong Kong did not care is worth noting. The US ambassador to China Burns met with China’s Foreign Minister Qin Gang today, while last week John Kerry said he was invited to visit China “in the near term”. Are these green shoots in US-China relations? Let’s hope so.

The Hang Seng and Hang Seng Tech indexes gained +1.24% and +0.48%, respectively, on volume that increased +9.9% from Friday, which is 90% of the 1-year average. 275 stocks advanced while 215 declined. Main Board short turnover increased +4.52% from Friday, which is 71% of the 1-year average as 13% of turnover was short turnover. Value factors outperformed growth factors as large caps outperformed small caps. The top-performing sectors were energy, which gained +4.89%, financials, which gained +3.25%, and utilities, which gained +1.66%. Meanwhile, real estate fell -0.54%, healthcare fell -0.33%, and communication services, which fell -0.25%. The top-performing subsectors were energy, banks, and insurance. Meanwhile, food/staples, consumer services, and semiconductors were the worst-performing. Southbound Stock Connect volumes were light/moderate as Mainland investors bought $232 million worth of Hong Kong stocks.

Shanghai, Shenzhen, and the STAR Board gained +1.81%, +0.44%, and +0.77%, respectively, on volume that increased +6.58% from Friday, which is 124% of the 1-year average. 2,821 stocks advanced while 1,790 stocks declined. Value factors outperformed growth factors, while large caps outperformed small caps. The top-performing sectors were energy, which gained +4.56%, financials, which gained +3.26%, and materials, which gained +0.9%. Meanwhile, consumer staples fell -1.36%, communication services fell -0.78%, and healthcare fell -0.25%. The top-performing subsectors were oil/gas, banks, and telecom. Meanwhile, restaurants, aviation, and airports were among the worst. Northbound Stock Connect volumes were high as foreign investors bought a net $296 million worth of Mainland stocks. CNY and the Asia Dollar Index fell slightly versus the US dollar. Treasury bonds were sold while copper and steel rallied.

Upcoming Event

Join us Thursday, May 11th at 12:15 pm PDT/3:15 pm EDT for our virtual conference:

KraneShares 2nd Annual West Coast Virtual Investment Forum: Investing in a Changing World

Click here to register

5.5 CFP & CIMA CE Credits Available

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.92 versus 6.91 yesterday
• CNY per EUR 7.64 versus 6.62 yesterday
• Yield on 1-Day Government Bond 1.37% versus 1.37% yesterday
• Yield on 10-Year Government Bond 2.75% versus 2.73% yesterday
• Yield on 10-Year China Development Bank Bond 2.92% versus 2.90% yesterday
• Copper Price +0.66% overnight
• Steel Price +2.43% overnight