Week in Review
- The reopening trade came back to life in Asia on Monday after Pfizer said that its covid-19 pill is nearly 90% effective at reducing deaths and hospitalizations for the most vulnerable. Beneficiaries of the news included Macau casinos and airlines.
- Clean energy names had a strong start to the week as the PBOC urged banks to offer low loan rates to companies helping China achieve its carbon goals and Eve Energy announced a line of electric vehicle batteries.
- China released key October economic indicators on Wednesday. October CPI was a non-event at 1.5% versus the estimate of 1.4% and September’s 0.7%, while PPI came in higher than anticipated at 13.5% versus the estimate of 12.3% and September’s 10.7%. Meanwhile, aggregate financing and new loans beat estimates
- Earnings season continued as Twitter-like social media platform Weibo’s results, reported Thursday, beat analyst estimates. Also on Thursday, the US and China announced a strategic partnership on climate at COP26, the UN-sponsored climate summit in Glasgow, UK.
Friday’s Key News
Asian equities ended a positive week on a high note. Biden and Xi will meet virtually on Monday with tariffs garnering some attention in light of the US’ rising inflation. Addressing climate change seems like an easy win considering China’s vast solar, wind and electric vehicle (EV) manufacturing capabilities.
The Hang Seng gained +0.32% on light volumes led by China internet stocks as the Hang Seng Tech Index gained +1.56%. Key internet movers in Hong Kong included Tencent, which gained +1.59%, Meituan, which gained +2.62%, Alibaba HK, which fell -0.49%, JD.com HK, which gained +5.17%, Kuaishou, which gained +0.3%, and NetEase, which gained +4.63%. Several technical analysts have chimed in on the recent basing pattern exhibited by the stocks.
Alibaba was off despite a strong Singles Day as consumers purchased RMB 540.3 billion ($84.54 billion) worth of goods versus 2020’s RMB 498.2 billion, which is +8.5% year-over-year while JD.com reported sales of RMB 349.1 billion ($54.63 billion), which is +29% year-over-year. I am a little surprised Alibaba did not do better overnight candidly though investors appear cautious ahead of next week’s earnings release.
Mainland investors were net sellers of Hong Kong stocks overnight as Tencent saw net sales via Southbound Stock Connect. Mainland investors own 6.36% of Tencent, which is more than 2X the value held by Mainland investors of the second most-held Hong Kong stock, China Construction Bank, via Southbound Stock Connect.
E-cigarette /vaping company Smoore gained +14.49% after a Mainland regulator posted rules that were less restrictive than anticipated.
Mainland China gained as Shanghai rose +0.18%, Shenzhen rose +0.38%, and the STAR Board rose +0.21% on volumes that were -2.53% lower than yesterday though still slightly above the 1-year average. The clean technology ecosystem was hit with profit taking after a very strong day yesterday.
Foreign investors bought $568 million worth of Mainland stocks today. For the week, foreign investors sold -$420 million worth of Mainland stocks. CNY, China’s currency, had a strong day versus the US dollar, closing at 6.38 versus yesterday’s close of 6.40. Evergrande’s April 2022 bonds were flat at $28.10 while the June 2025 bonds were off slightly at $23.90.
Next week will be very busy for China internet earnings as we have Meituan reporting Monday after the close in Hong Kong, NetEase reporting Tuesday, Baidu and Bilibili reporting Wednesday, and Alibaba, Full Truck Alliance, and JD.com will all report on Thursday. I will have to stock up on coffee in advance!
MSCI released the pro-forma for their December 1st Semi-Annual Index Review, which requires MSCI benchmarked passive managers to trade at the market close on November 30th. What jumps out to me? The US is 68.1% of the world’s equity market capitalization, which seems like a lot to me considering the US is approximately 30% of the world’s GDP. Coincidentally, a few brokers were talking about the Warren Buffet indicator of comparing a country’s market cap to GDP now that the US market cap is more than 200% of GDP. This is not a sell signal, but merely an observation. China’s weight in Emerging Markets will remain flat at 34.7% while China’s numerical count will increase from 740 to 751 based on 58 additions and 48 deletes. Numerically, China is 751 of MSCI EM’s 1,432 stocks, which is 52% of the total by number of companies. Singapore-based E-Commerce company SEA (SE US) will see another inclusion into MSCI indexes as its inclusion increases another 25% of market cap added with another 50% coming in March 2021. JD.com and NetEase’s US ADRs will be replaced by JD.com and NetEase’s Hong Kong listing. This has nothing to do with the HFCAA, but, rather, MSCI considering the Hong Kong listing a local listing versus the US ADR, which is considered a “foreign” listing. I can predict the future! We will very likely see articles about how US asset managers “sold” NetEase ad JD.com early next year when they simply converted their shares.
My youngest son shared the below WWI poem titled “Flanders Field” by John McCrae with me this morning. I’m a day late as Veterans Day was yesterday, but wanted to share regardless. Many thanks again to all our veterans and to the families whose children made the ultimate sacrifice.
Last Night’s Exchange Rates, Prices, & Yields
- CNY/USD 6.39 versus 6.39 yesterday
- CNY/EUR 7.37 versus 7.40 yesterday
- Yield on 1-Day Government Bond 1.70% versus 1.60% yesterday
- Yield on 10-Year Government Bond 2.91% versus 2.90% yesterday
- Yield on 10-Year China Development Bank Bond 3.18% versus 3.17% yesterday
- Copper Price +0.73% overnight