Markets Cheer As Vice Premier Confirms COVID Restriction Dial Back

Key News

Asian equities cheered Powell’s dovish speech yesterday while Indonesia announced a trading tax which investors gave a Bronx cheer/the thumbs down on.

Vice Premier Sun Chunlan, known for implementing Shanghai’s spring lockdown and earning the nickname the COVID Queen according to one of our Mainland brokers, spoke at a National Health Commission symposium to support reducing COVID restrictions. She noted that omicron is less lethal than other variants while outlining a big push to get the elderly vaccinated. Beijing, Shenzhen, and Guangzhou’s local governments announced eased measures as they implement the central government’s directive.

Hong Kong opened higher as internet stocks had a good day, though not quite as strong as US-listed Chinese stocks yesterday. Hong Kong’s most heavily traded were Tencent +2.51%, Meituan -0.37%, and Alibaba HK +3.63%. The Mainland market also had a good day, led by growth stocks. Real estate stocks pulled back in both Hong Kong and China as investors digest potential dilution as property developers begin issuing new stock to shore up their finances. If I were a hedge fund, I might consider shorting real estate stocks and going long the bonds.

Foreign investors were active in China’s onshore market, buying a healthy $1.615B of Mainland stocks. Kweichow Moutai (600519 CH) +1.99%, China’s most heavily traded stock today and, in general, announced yesterday a special dividend would be paid to shareholders. Hong Kong short sellers have been quiet the last few weeks as Main Board short turnover fell to 14% of total turnover versus the 18% average YTD.

At our annual conference yesterday (replay available at kraneshares.com), NIO’s CFO stated he expects EV subsidies to end next year though overnight a Mainland media source noted there wouldn’t be a “complete pull-out of stimulus policies for the sector.” Ironically, FTSE announced that XPeng would be removed from its China 50 index at the mid-December rebalance after a massive day yesterday. EV November sales appear soft based on early indications this morning. It was a great event yesterday that I recommend taking a look at! If you would like the CICC’s equity strategist’s deck, email us at [email protected] I am sure short sellers covering their positions was a factor. Can you imagine if we get a positive outcome to the PCAOB’s review of PWC, KPMG, and Deloitte? Top of my holiday wish list is a positive outcome! Fingers crossed.

The Hang Seng and Hang Seng Tech +0.75% and +1.08% on volume -10.59% from yesterday, which is 161% of the 1-year average. 258 stocks advanced, while 236 declined. Main Board short turnover declined -23.43% from yesterday, which is 133% of the 1-year average, as 14% of turnover was short turnover. Growth factors edged out value factors as small caps outpaced large caps. The top sectors were communication +2.67%, materials +1.57%, and discretionary +1.52%, while real estate -2.1%, utilities -1.89%, and energy -1.69%. The top sub-sectors were food, software, and durables, while energy, business services, and household products were among the worst. Southbound Stock Connect volumes were high as Mainland investors bought $261mm of Hong Kong stocks, with Tencent and Xpeng a small net sell, Kuaishou a moderate net buy, and Meituan a small net buy.

Shanghai, Shenzhen, and STAR Board gained +0.45%, +1.26%, and +0.91% on volume +13.55% from yesterday, which is 111% of the 1-year average. 3,044 stocks advanced, while 1,542 stocks declined. Growth factors outpaced value factors, while small caps outperformed large caps. The top sectors were communication +4.94%, staples +3.77%, and tech +2.46%, while energy was the only down sector -0.52%. The top sub-sectors were office supplies, precious metals, and food industry, while airports, financials, and coal were among the worst. Northbound Stock Connect volumes were high as foreign investors bought a healthy $1.615B of Mainland stocks. CNY increased slightly, +0.16% versus the US dollar to close at 7.08, Treasury bonds were flat, and copper +1.28%.

China Major China Mobility Tracker

Car traffic is picking up in a strong sign of relaxation, while subway usage might have hit bottom.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.08 versus 7.09 Yesterday
• CNY per EUR 7.39 versus 7.34 Yesterday
• Yield on 10-Year Government Bond 2.86% versus 2.89% Yesterday
• Yield on 10-Year China Development Bank Bond 3.00% versus 3.03% Yesterday
• Copper Price +1.28% overnight