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PCAOB To Inspect 100% Of China Auditors, Foreign Investors Return

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Asian equities were mixed but mostly higher overnight as foreign investors bought over $1 billion worth of Mainland China stocks.

With profound respect and deep sorrow, we at KraneShares mourn the passing of Dr. Henry A. Kissinger, our 56th Secretary of State, venerable centenarian, and esteemed scholar of international relations.

The US Public Company Accounting Oversight Board (PCAOB) announced fines for auditors PWC
PWC
Hong Kong and PWC China resulting from on-the-ground audit reviews this year and last. The silver lining here is that, in the same release, the Board confirmed that it will be able to inspect all auditors of US-listed Chinese companies after being granted full access in 2022.

“Together, the firms we inspected in 2022 and 2023 audited 99% of the total market cap of U.S.-listed companies audited by Hong Kong and mainland China firms, and we are on track to inspect firms that audited 100% of the total market cap by the end of 2024,” said PCAOB Chair Erica Y. Williams.

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With most indicators pointing to a long pause in rate hiking by the US Fed and some analysts even anticipating rate cuts next year, investors are turning more bullish on EM equities. We have seen a flurry of research reports recommending China allocations for the first time in at least one year as banks and asset managers begin to publish their 2024 outlooks. This is already being reflected in the performance of China’s currency versus the US dollar. The Renminbi has gone from 7.29 per USD to 7.14 in just two weeks.

Streaming and gaming platform Bilibili reported Q3 earnings yesterday. The company’s top line revenue was just slightly above estimates while net profit came in below estimates. The company reported earnings per share (EPS) of RMB -2.1 compared to an estimated RMB -1.8. Bilibili’s outlook must have weighed on sentiment as the company lost tens of millions in market cap, which the Q3 earnings alone probably do not justify. The company suggested that full year 2023 game revenues could be below guidance.

The Caixin Manufacturing Purchasing Managers’ Index (PMI) will be released tomorrow morning China time, tonight Eastern time. The expectation is for the diffusion index to show a slight contraction, but upside surprises in China’s economic data are becoming more frequent.

The Hang Seng and Hang Seng Tech indexes diverged to close +0.29% and -0.27%, respectively, overnight on volume that increased +7% from yesterday. Mainland investors bought a net $220 million worth of Hong Kong stocks overnight via Southbound Stock Connect. The top-performing sectors overnight were Communication Services, which gained +2.28%, Utilities, which gained +1.04%, and Real Estate, which gained +0.67%. Meanwhile, the worst-performing sectors were Consumer Discretionary, which fell -0.20%, Information Technology, which was flat, and Industrials, which gained +0.08%.

Shanghai, Shenzhen, and the STAR Board diverged to close +0.26%, -0.35%, and +0.42%, respectively, on volume that was flat from yesterday. Foreign investors bought a net $1.1 billion worth of Mainland stocks overnight via Northbound Stock Connect. The top-performing sectors overnight were Utilities, which gained +1.35%, Consumer Staples, which gained +0.63%, and Health Care, which gained +0.61%. Meanwhile, the worst-performing sectors were Consumer Discretionary, which fell -0.76%, Materials, which fell -0.60%, and Information Technology, which fell -0.57%. CNY was slightly lower versus the US dollar, copper fell, and steel gained.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

  • CNY per USD 7.14 versus 7.13 yesterday
  • CNY per EUR 7.79 versus 7.83 yesterday
  • Yield on 1-Day Government Bond 1.60% versus 1.65% yesterday
  • Yield on 10-Year Government Bond 2.66% versus 2.68% yesterday
  • Yield on 10-Year China Development Bank Bond 2.77% versus 2.77% yesterday
  • Copper Price -0.06% overnight
  • Steel Price 0.56% overnight

Source: Fox Business

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