Key News
Asian equities were mixed overnight, as Pakistan outperformed and Taiwan underperformed, as the US dollar weakened.
Hong Kong struggled with a sell-off into the close, despite the US dollar weakness. The end of day downdraft could have been driven by quarterly and monthly rebalances, though it is hard to say for sure. Yes, Hong Kong-listed stocks are denominated in Hong Kong dollars, which are pegged to the US dollar. However, the underlying companies are mainly in China and generate revenues in renminbi. If the renminbi (CNY) appreciates, the underlying companies are theoretically worth more, which occurred overnight. CNY appreciated versus the US dollar overnight, closing at 7.16 per USD. A few factors explain today’s market action, especially the weakness in internet stocks: an economic release, investors fundraising to participate in IPOs, and some broker downgrades. See below.
The purchasing managers’ index (PMI) surveys are diffusion indexes measuring changes month-to-month (MoM). Values above 50 indicate growth, while values below 50 indicate contraction. Despite Manufacturing contracting more slowly, the release was viewed as a sign of the economy recovering, which, ironically, could weigh on sentiment as it lowers expectation for stimulus. The trade war’s recent de-escalation helped, while the consumption subsidy isn’t going away.
Investors needed to fund their allocations to two IPOs today: IFHB (6603 HK) and Unisound AI (9678 HK). Coconut water company IFHB gained +42.09% after raising HKD 1.16 billion, with the offering being oversubscribed 2,682 times. Speech and language recognition company Unisound AI gained +44.59% after raising $206 million, as the offering was oversubscribed by 92 times. IPOs need to be funded from somewhere, which likely explains why large caps underperformed in Hong Kong. Meanwhile, Mainland investors were net sellers of mega caps via Southbound Stock Connect, but were net buyers overall by $664 million.
A broker downgraded Alibaba, which fell -2.05%, Meituan, which fell -3.17%, and JD.com, which fell -1.84%, citing increased competition.
Meanwhile, the Financial Times had an article on Shein and PDD’s US sales being adversely affected by the cancellation of the de minimis exemption for shipments valued at under $800. Remember, the Financial Times called PDD a fraud a year ago. Also, the article was based on data from Sensor Tower, not an original source. Real-time data on internet companies is widely available for a price, as third-party data providers can track app downloads and activity. Are we surprised that the Financial Times only published the real-time data when it was negative?
Recent market favorites had a good day, led by Xiaomi, which gained +1.7%, Guotai Junan International, which gained +13.58%, Pop Mart, which gained +3.41%, and Laopu Gold, which gained +14.94%, closing at nearly HKD 1,000. Baidu fell -0.48%, after making the latest version of Ernie, its large language model (LLM), open source.
Mainland China grinded higher, led by growth stocks and subsectors including technology hardware, semiconductors, and electronic equipment. Meanwhile, aerospace names continue to benefit from the India-Pakistan flare-up.
It was an interesting divergence today, as Mainland China outperformed Hong Kong, which has become rare these days.
President Trump stated that TikTok will be sold, though such a transaction would require approval from China. Why not spin it off in an IPO?
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.16 versus 7.17 Friday
- CNY per EUR 8.39 versus 8.39 Friday
- Yield on 10-Year Government Bond 1.65% versus 1.65% Friday
- Yield on 10-Year China Development Bank Bond 1.70% versus 1.69% Friday
- Copper Price 0.04%
- Steel Price 0.64%
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