Key News
Asian equities were mixed but mostly lower overnight as Singapore and Korea outperformed and Pakistan and Hong Kong underperformed.
Development and Reform Commission (NDRC), Ministry of Finance (MoF), Ministry of Commerce (MoC), People’s Bank of China (PBOC), and the State Administration Market Regulation (SAMR) were in attendance. The Briefing was followed by a Q&A with reporters. Obviously, the market response was a yawn, though the release highlighted the unquestionable success of the auto and home appliance trade-in consumer subsidy programs, which is why it will be expanded by scale and scope in 2025. Some key quotes from the briefing:
- “First, we will vigorously promote equipment upgrades. We will continue to support the update of equipment in the industrial, energy-consuming equipment, energy and power, transportation, logistics, environmental infrastructure, education, culture and tourism, medical, old elevators and other fields, and further include the electronic information, Safety Production, facility agriculture and other fields with great potential for upgrading and replacement in the subsidy scope. “
- Second, “expand the scope of support for the exchange of old consumer goods for new ones” beyond autos and home appliances, while increasing the types of home appliances “implementing new subsidies for purchasing mobile phones and other digital products”
- When asked by Reuters what the value of bonds issued to support the consumption upgrade in 2025 versus 2024, the response was “Please be patient, and the specific amount will be announced to the public at the national ‘Two Sessions’ policy meetings this year.” The response sums up the problem as no one has any patience left.
Tencent’s unsponsored American depositary receipt (ADR), which has the ticker TCEHY, sold off dramatically Monday as the company, along with China electric vehicle (EV) battery giant CATL, after their addition to a US Department of Defense (DoD) list of Chinese companies with operations in the United States affiliated with the Chinese military (CMC list). The list prohibits the DoD from buying goods and services from companies on the list.
Being on the DoD’s CMC list does not prohibit US investors from investing in the companies nor does require the removal of the companies’ stock from global indices. The CMC is different than the Office of Foreign Assets Control (OFAC) list titled CMIC, as the latter prevents US investors from holding publicly traded companies on the list.
Why the sell-off off then? Many investors are not familiar with the lists or their differentiations, i.e., they shoot first and ask questions later. Being on the CMC list does not lead a company being added to the CMIC list and there is not 100% overlap between the two lists. The lists are also maintained by different entities.
Mainland investors have purchased over $3 billion worth of Hong Kong-listed stocks and ETFs over the past two sessions, on a net basis. Clearly, they are buying the dip on Hong Kong’s weakness.
Tencent predominantly derives revenue from selling video games (familiar games would be subsidiaries’ Fortnite and Clash of Clans), monetizing the WeChat social media platform via advertisers, and its FinTech unit through mobile payments and consumer loans. Yes, the company has both AI and cloud computing efforts, though the label that it is affiliated with the Chinese military is exceedingly hard to imagine. The company immediately stated it would look to engage the DoD to rectify the mistaken clarification. If the DoD maintains the designation, Tencent could sue in US court.
The most high-profile similar case was cell phone and EV maker Xiaomi, which was added to the CMIC divestment list (which at the time was called the CCMC list), not the CMC list, on January 14, 2021. The company engaged with the DoD, which declined to remove the company. Xiaomi sued in the District Court for Washington, DC and won on March 14, 2021. The DoD removed the company from the divestment list on May 11th.
The EV ecosystem was mostly lower overnight though EV maker Xpeng unveiled a flying car.
The Hang Seng and Hang Seng Tech indexes closed lower by -0.86% and -1.09%, respectively, on volume that declined -18% from yesterday. Mainland investors bought a net $1.9 billion worth of Hong Kong-listed stocks and ETFs overnight via Southbound Stock Connect. The top-performing sectors were Industrials, which gained +0.18%, Financials, which fell -0.05%, and Energy, which fell -0.36%. Meanwhile, the worst-performing sectors were Information Technology, which fell -3.87%, Communication Service, which fell -2.02%, and Utilities, which fell -1.38%.
Shanghai, Shenzhen, and the STAR Board closed The top-performing sectors were Utilities, which gained +0.97%, Energy, which gained +0.40%, and Communication Services, which gained +0.33%. Meanwhile, the worst-performing sectors were Materials, which fell -1.22%, Real Estate, which fell -0.89%, and Health Care, which fell -0.85%.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
CNY per USD 7.33 versus 7.33 yesterday
CNY per EUR 7.55 versus 7.59 yesterday
Yield on 10-Year Government Bond 1.61% versus 1.61% yesterday
Yield on 10-Year China Development Bank Bond 1.65% versus 1.66% yesterday
Copper Price +0.26%
Steel Price -0.56%
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