Hong Kong Internet Stocks Gain on Biden-Xi Meeting

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Asian stocks had a good day as China and Hong Kong outperformed following a positive meeting between Presidents Biden and Xi in Bali and continued support for the real estate sector.

Hong Kong internet stocks rose with Hong Kong’s top sellers Tencent +10.51%, Alibaba HK +11.05% and Meituan +6.33%. Post Party Congress is back to business for the Chinese government, as a number of important issues related to securing government jobs over the next five years are resolved: US-China Political relations, zero COVID policy and real estate. The restoration of relations between the United States and China is a very important step with the next meeting of Secretary of State Blinken, who is still visiting China. Discussions on Taiwan, Ukraine and Russia are also important. COVID has spread throughout China as 1,621 new cases of COVID and 16,151 asymptomatic cases were reported. Nevertheless, we do not see significant lockdowns as the dynamic zero-Covid eases restrictive policies.

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We are also seeing significant support for property developers in distress. These issues have significantly affected foreign investor sentiment and domestic consumption in China. One remaining issue, the Holding Foreign Company Reporting Act (HFCAA)/ADR delisting, could be positively resolved based on the Biden-Xi meeting.

We had a very strong day in Hong Kong, with all sectors positive and short turnover down to 15% of total turnover. Obviously, a positive HFCAA resolution would be another significant catalyst, although we also have third quarter earnings with Tencent reporting after the Hong Kong close tomorrow, along with Alibaba and NetEase.
Thursday and JD.com Friday. Forward-looking Q4 forecasts will be important, as companies are talking about whether a dynamic zero-Covid could boost domestic consumption more than the backward-looking Q3 results. The market ignored today’s backward-looking economic data as retail sales, industrial production and fixed capital investment all missed expectations with small increases in October. The past is not important, the future is.

Mainland China had a good day as semiconductor stocks were a key sub-sector in the US-China political talks. Mega/large-cap growth stocks, favorites of both domestic and foreign active managers, include China’s top-selling beverage giant Kweichow Moutai +3.59%, brokerage East Money +5.36% and EV battery giant CATL +2.32% raised the market. Foreign investors bought $1.157 billion worth of mainland stocks today, following yesterday’s net buying of $2.349 billion and Friday’s net buying of $2.066 billion. Treasuries were buoyed by equities, while the CNY rose +0.47% to close at 7.04 against the US dollar. In the post-Hong Kong/pre-US market, Tencent Music Entertainment (TME US, 1698 HK) beat revenue and adjusted net income estimates, although adjusted EPS missed slightly.

The Hang Seng and Hang Seng Tech gained +4.11% and +7.3%, respectively, from yesterday on volume of +0.09%, which is 166% of the 1-year average. 447 shares increased in price, while 62 shares decreased. Main Board short turnover is up +7.14% from yesterday, which is 146% of the 1-year average, as 15% of turnover is short. Value and growth factors were mixed as small caps outperformed large caps. All sectors were positive as communications closed +9.96%, discretionary +7.76% and technology closed +5.2%. The top subsectors were software, retail and subsectors. Southbound Stock Connect volumes averaged 2X as mainland investors bought +$32m in Hong Kong stocks today with Tencent following yesterday’s large net buy, Kuaishou was a small net sell and Meituan was a medium net sell.

Shanghai, Shenzhen and STAR Board gained +1.64%, +2.05% and +2.85% volume respectively from yesterday, which is 109% of the 1-year average. 4045 shares advanced while 578 shares declined. Growth factors outperformed value factors and small sizes outperformed large sizes. All sectors were positive, with tech closing higher +3.71%, staples +2.26% and utilities ending +2.08%. The main sub-sectors were semi-sectors, electronic components and office supplies, while precious metals and transport were the only negative sub-sectors. Northbound Stock Connect volumes were moderate/high as foreign investors bought $1.157 billion worth of Mainland stocks. Chinese Treasuries sold off, CNY +0.47% against the USD to 7.04, while copper fell -0.9%.

Last Night’s Currency Rates, Prices and Returns

  • CNY 7.04 USD vs. 7.07 USD yesterday
  • CNY was 7.33 against 7.29 euros yesterday
  • 10-year government bond yield 2.81% vs. 2.84% yesterday
  • China Development Bank 10-year Bond yield 2.96% vs. 2.97% yesterday
  • Copper price -0.90% overnight

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