Asian equities were mixed overnight as Mainland China outperformed, led by materials. The PBOC suggested easier policy in the near to medium term, adding a tailwind for Mainland-listed equities. Shanghai, Shenzhen, and the STAR Board gained 0.61%, 1.42%, and 2.44%, respectively. Meanwhile, the Hang Seng dipped -0.39% and the Hang Seng Tech Index fell -0.73%.
Hong Kong Exchanges & Clearing (HKEX) announced changes to its rules for secondary listings that would make it easier for US-listed Chinese companies to re-list in Hong Kong. Issuers without a weighted voting rights (WVR) structure will now be able to re-list in Hong Kong without demonstrating they are an “innovative company” and with a lower minimum market capitalization at listing than currently required. Furthermore, Grandfathered Greater China Issuers and Non-Greater China Issuers eligible for secondary listing with their existing WVR and/or variable interest entity structures may opt for a dual primary listing. The new rules will go into effect in January, and we expect a slew of re-listings of China internet companies in Hong Kong to come as a result.
Alibaba, Tencent, and Baidu were fined retroactively for past violations. The companies were fined a measly $78,000 for each violation (not a typo). We knew that some regulatory news would pop up before the end of the year and I suppose this is it. It is important to note that some of these violations date back to 2012 and they were all retroactive. These companies are already in compliance with the new regulatory framework.
Alibaba HK was down -2% overnight as investors continue to digest the company’s less than stellar Q3 and the new fines. While macro headwinds weighed on the company‘s bottom line, it is important to remember that it was also affected by the company’s heavy investments in new businesses. Yes, we are seeing some growth and consumer slowdowns in China. However, the company did sell $85 billion worth of goods on Singles Day this year, a new record that outpaced JD’s performance during the sales event. Also, the company is currently executing a pivot to enterprise services such as cloud computing, which we are seeing emerge as a common trend among China’s internet giants. Enterprise services are a tremendous opportunity in China as most companies currently rely on foreign cloud firms. That, combined with the company’s inevitable participation in the metaverse, mean that the company should continue to grow.
Real estate names experienced some profit-taking on the Mainland. However, the potential easing of real estate restrictions following regulators’ closer look at the sector bode well for a rebound, especially in the bond market. There was a report that homebuyers in Guangzhou city can, once again, receive a mortgage even if their home purchase does not line up with official reference prices.
The electric vehicle ecosystem continued to soar in China overnight. BYD announced plans to reinvest $1.7 billion into its core new energy vehicle business. Moreover, initial reports are that 2021 may end up being a blockbuster year for electric vehicle sales in China, far outpacing 2020’s 1.4 million vehicles.
Last Night’s Exchange Rates, Prices, & Yields
- CNY/USD 6.38 versus 6.39 Friday
- CNY/EUR 7.20 versus 7.22 Friday
- Yield on 1-Day Government Bond 1.70% versus 1.70% Friday
- Yield on 10-Year Government Bond 2.89% versus 2.93% Friday
- Yield on 10-Year China Development Bank Bond 3.17% versus 3.19% Friday
- Copper Price +0.04% today