Internet and Relaunch Games Roll On

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Asian stocks were mostly higher as Thailand outperformed Hong Kong and the People’s Republic of China while Thailand was on holiday for the late King Bhumibol Adulyadej’s birthday. The continued rollback of COVID regulations in many cities, particularly Shanghai, led to another strong day in Hong Kong, China, and Hong Kong-listed internet stocks in particular.

Mainland media highlighted an expert from the Beijing Institute of Respiratory Diseases, who said that “the pathogenicity and toxicity of Omicron interactions … are significantly weakened compared to the original strain and Delta.” With the omicron variant less deadly than the original covid and delta, it makes sense to roll back the restrictions, adding to the frustration of the population as a result of nearly three years of draconian policies. This is despite 4,247 new covid cases, along with 25,477 asymptomatic cases reported today.

Over the weekend, China’s internet stocks were dubbed “China’s best reopening play” on “distressed” valuations highlighted by an analyst covering the space, along with companies’ exposure to e-commerce and online travel booking. As my colleague Jonathan Shelon eloquently puts it, “China’s internet stocks are transmission engines for domestic consumption as it happens online.” At our investor conference last week, Alibaba’s Head of Investor Relations, Robert Lin, talked about the company’s important role in retail.

Shorts covering their positions led to some very big performers today, including Bilibili, which gained +28%, and Xpeng, which gained +26%. The most traded stocks in Hong Kong by value were Tencent, which gained +6.08%, Alibaba HK, which gained +9.26%, and Meituan, which gained +3.75%.

The Politburo meets tomorrow, which may give us clues on economic policies coming out of the Central Economic Work Conference (CEWC) in ten days.

A bank’s global strategist upgraded China to overweight for the first time after two years of underweighting it. Investors underweight China may eventually have to chase the name.

China had a good day except for semiconductor stocks. The continent’s top-traded stocks by value were Shijiazhuang Yiling Pharmaceutical, which gained +8.29%, brokerage East Money, which gained +4.97%, and Ping An Insurance, which gained +5.96%, and Sungrow Power, which fell -9.58%. weak European demand. Financiers had a good day on the mainland, gaining +4.95% as financial regulators’ policies allowed banks to support struggling property developers. Foreign investors bought $848 million worth of Mainland shares today. The CNY had a strong day, gaining +1.48% against the US dollar to close at CNY 6.96 per USD, while the Asian dollar index gained +0.47%.

The Hang Seng and Hang Seng Tech indices have gained +4.51% and +9.27%, respectively, on volume up +56.18% since Friday, which is 181% of their 1-year average. 470 shares increased in price, while 41 shares decreased. Main Board short sales volume is up +46.31% since Friday, which is 148% of its 1-year average, as 14% of turnover is short. Growth and value factors were mixed as small caps outperformed large caps. All sectors were positive as consumer discretionary increased +7.9%, technology +6.96%, communication services +6.93%. The top performing subsectors in Hong Kong were healthcare equipment, retail and hardware, while semiconductors were off. Southbound Stock Connect volumes were high as mainland investors sold a net $182 million worth of Hong Kong stocks. Tencent was a large net sell in trading software, Meituan was a slight net buy, Kuaishou was a medium buy, and Xpeng was a medium net sell.

The Shanghai, Shenzhen and STAR Boards closed down +1.76%, +0.88% and -0.45% respectively from yesterday on -22.35% lower volume, which is 111% of the 1-year average. 3,286 shares advanced while 1,366 shares declined. Value factors outperformed growth factors as large caps outperformed small caps. All sectors were positive as communication services gained +6.34%, finance +4.9%, energy +3.13%. The best performing sub-sectors on the mainland were telecommunications, diversified finance and construction. Meanwhile, power generation equipment, motorcycles and chemicals were among the worst performers. Northbound Stock Connect volumes were moderate/high as foreign investors bought a net $848 million worth of Mainland stocks. CNY rose more than +1% from Friday to close at 6.96 from Friday’s 7.05, Treasuries sold off slightly and copper gained +0.59%.

Last Night’s Currency Rates, Prices and Returns

  • CNY 7.96 versus CNY 7.05 on Friday
  • CNY 7.34 vs. 7.37 on Friday
  • 1-Day Treasury Bond Yield 1.10% vs. 1.20% on Friday
  • The 10-year Treasury yield was 2.89% versus 2.87% on Friday
  • The 10-year China Development Bank Bond yielded 3.02% versus 3.00% on Friday
  • Copper price +0.59% overnight

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