Hong Kong Internet Stocks Ride Policy Tailwind As COVID Weighs On Mainland Sentiment:

Key News:

Asian equities had a rough Monday, less so India and Singapore as Lionel Messi turned the world into soccer fans (at least temporarily!) with Argentina’s thrilling win over France.

Volumes were light regionally as Friday marked the last trading/liquidity event of the year for institutions. Hong Kong and China both opened higher but slid across the trading day despite the Central Economic Work Conference’s strong pro-growth/pro-domestic consumption release that emphasized internet companies, EVs, and real estate. In addition to the CEWC’s pro-consumption release, which emphasized the importance of internet companies, a high-ranking regional government official visited Alibaba’s headquarters.

Hong Kong internet stocks outperformed today as evidenced by Hong Kong’s most heavily traded by value were Tencent +1.14%, Alibaba HK +0.69%, Meituan, and Kuaishou +1.15%. After the Hong Kong close, it was announced eligibility for Northbound and Southbound Stock Connect will be expanded in three months which should allow more dual listed stocks with a Hong Kong primary listing added. The issue that weighed on Hong Kong and to a greater degree Shanghai and Shenzhen is the spread of COVID in China. Remember investing in stocks is for your excess savings. Therefore, if you are cautious, you will likely cut back on stocks.

Our Major Chinese Mobility Tracker shows that both traffic and subway usage have decreased significantly over the last few weeks. Although the government is relaxing rules, people are clearly concerned about getting sick. While this trend may worsen in the short run, there is a light at the end of the tunnel as today’s WSJ noted the sharp uptick in domestic air travel. The risk off sentiment can be seen in healthcare, arguably a beneficiary of COVID, was the worst sector in both Hong Kong and China. Trading is expected to be light the next two weeks though professional investors will need to position themselves in light of the PCAOB news regarding the Holding Foreign Companies Accountable Act and the reality of a China re-opening in 2023. Position yourself accordingly!

The Hang Seng and Hang Seng Tech lost -0.5% and -0.58% respectively on volume -26% from Friday which is 81% of the 1-year average. 110 stocks advanced while 395 declined. Main Board short turnover declined -30.11% from Friday which is 64% of the 1-year average as 14% of turnover was short turnover. Value factors outperformed growth factors as large caps outperformed small caps. Top sectors were communication +0.78%, staples +0.26%, and discretionary +0.11% while healthcare fell -3.92%, utilities -3.54%, and industrials -2.67%. Top sub-sectors were software, retail, and food/beverages while pharma, healthcare equipment, and food staples were among the worst. Southbound Stock Connect volumes were light as Mainland investors sold -$54 million of Hong Kong stocks with Tencent, Meituan, and Kuaishou all small net buys.

Shanghai, Shenzhen, and STAR Board fell -1.92%, -1.78%, and -2.27% on volume -0.22% from Friday which is 81% of the 1-year average. 518 stocks advanced while 4,216 stocks declined. Growth factors “outperformed” value factors while large caps outperformed small caps. All sectors were down with industrials -1.07% and healthcare -3.28%. The only positive sub-sector was education while pharma, telecom, and biotech were among the worst. Northbound Stock Connect volumes were light as foreign investors sold -$213 million of Mainland stocks. CNY was off very slightly versus the US dollar at 6.97, Treasury market rallied, and copper off -0.23%.

Major Chinese Mobility Tracker

Slowing usage trend in place.

Last Night’s Performance:

Last Night’s Exchange Rates, Prices, & Yields

  • CNY per USD 6.97 versus 6.97 Friday
  • CNY per EUR 7.39 versus 7.40 Friday
  • Yield on 10-Year Government Bond 2.86% versus 2.88% Friday
  • Yield on 10-Year China Development Bank Bond 3.02% versus 3.04% Friday
  • Copper Price -0.23%