Week in Review
- Asian equities were mostly higher this week on the Fed pause and positive geopolitical developments.
- China internet stocks were higher though off best levels in a roller coaster week for the asset class on the Biden-Xi meeting, positive earnings releases from Tencent, JD.com, Vipshop, and Alibaba, and the announcement of the postponement of the Ali Cloud IPO.
- China announced Wednesday that October retail sales increased +7.6% year-over-year (YoY), exceeding an anticipated +7.0%, while online retail sales increased +11.2% YoY.
- The People’s Bank of China (PBOC) announced Tuesday that it will provide RMB 1 trillion ($137 billion) in special funding for affordable housing, which is the most significant fiscal support offered to the real estate market since policy easing began.
Key News
Asian equities were mostly lower overnight after a correction on Wall Street yesterday.
Health Care was the top-performing sector in Hong Kong overnight as pharmaceutical contract research organization Wuxi XDC
XDC
listed shares for the first time on the Hong Kong Stock Exchange (HKSE) overnight. The initial public offering (IPO) gained +36% in its first day of trading, injecting some much-needed positivity into the biotechnology and pharmaceutical spaces as well as reinvigorating the Hong Kong IPO market.
There were multiple financial support and easing measures taken overnight by top authorities. The PBOC and CSRC met with banks overnight to ensure support for the property sector. The central bank also issued a notice to banks to cap short-term financing rates.
Alibaba announced its first dividend as part of its earnings release on Thursday. The company will pay $1 per American Depositary Share (ADS), paying out a total of $2.5 billion in cash to shareholders. This is an interesting development as the company, along with many in its industry, has mostly refrained from paying a dividend even amid record low valuations and high cash on the balance sheet. This is because Alibaba and others in the internet space see themselves as growth companies. However, Alibaba has been included in some EM value benchmarks, so paying a one-time dividend makes sense. We have also advocated for a dividend payment to increase shareholder value other than share buybacks because short sellers will owe the dividend. However, Alibaba’s stock has seen significant declines since its earnings release because of the indefinite postponement of the IPO of Ali Cloud.
The Hang Seng and Hang Seng Tech indexes closed lower by -2.12% and -1.72%, respectively, on volume that decreased -15% from yesterday. Hong Kong short sale turnover also decreased -37% from yesterday (Remember that Hong Kong short selling is driven by ETF market makers hedging). Mainland investors bought a net $477 million worth of Hong Kong stocks overnight via Southbound Stock Connect. The top-performing sectors overnight were Information Technology, which gained +0.41%, Health Care, which gained +0.27%, and Industrials, which fell -0.39%. Meanwhile, the worst-performing sectors were Consumer Discretionary, which fell -4.89%, Communication Services, which fell -2.44%, and Real Estate, which fell -2.27%.
Shanghai, Shenzhen, and the STAR Board all closed higher by +0.11%, +0.44%, and +0.48%, respectively, on volume that decreased -3% from yesterday. Foreign investors sold a net -$365 million worth of Mainland stocks overnight via Northbound Stock Connect. The top-performing sectors overnight were Health Care, which gained +1.17%, Communication Services, which gained +0.59%, and Consumer Discretionary, which gained +0.81%. Meanwhile, the worst-performing sectors were Real Estate, which fell -0.02%, Consumer Staples, which gained +0.04%, and Energy, which gained +0.06%. CNY appreciated versus the US dollar, Treasury bonds rose in price, copper was flat, and steel was lower.
Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.21 versus 7.24 yesterday
- CNY per EUR 7.84 versus 7.87 yesterday
- Yield on 1-Day Government Bond 1.49% versus 1.50% yesterday
- Yield on 10-Year Government Bond 2.65% versus 2.66% yesterday
- Yield on 10-Year China Development Bank Bond 2.72% versus 2.72% yesterday
- Copper Price +0.06% overnight
- Steel Price -0.38% overnight
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