Alibaba Leads Hong Kong Internet Charge, Week In Review

Week in Review

• Asian equities were mixed this week as South Korea faltered and China markets gained, especially the internet sector, which saw a major improvement in sentiment.
• Real estate also had a positive week on data showing that new home sales increased +49% month-over-month in the first two weeks of June as policy shifts to being more accommodative of the sector.
• President Biden said Tuesday that he will be speaking with Xi Jinping soon as the US president mulled tariff action to curb inflation, which resulted in the announcement later in the week that the US will waive tariffs on imports of solar panels from Southeast Asia. However, we are still waiting for action on China tariffs.
• The electric vehicle ecosystem had a decent week as major firms’ shares soared on Thursday as China extended tax breaks for new energy vehicles.

Key News

Asia ended the week on a positive note except for Pakistan, which was off by nearly -4%. For the week, Hong Kong and China outperformed while South Korea had a rough week.

Volumes in both Hong Kong and Mainland China were strong overnight, coupled with healthy inflows into Mainland stocks via Northbound Stock Connect and into Hong Kong-listed stocks from Mainland investors via Southbound Stock Connect. Today, foreign investors bought $1.4 billion worth of Mainland stocks, bringing the weekly total to over $600 million.

Growth stocks outperformed in China as Hong Kong-listed internet stocks were strong, led by Alibaba HK, which gained +5.46%, Tencent, which gained +2.45%, and Meituan, which gained +2.86%. Ant Group becoming a financial holding company, which would pave the way for an IPO, was a factor in Alibaba’s strong performance overnight. Meanwhile, the State Council’s anti-monopoly law, which is going into effect on August 1^st, is not as heavy-handed as some had expected.

Health care was a very strong performer overnight though I have been struggling to identify today’s catalyst. A Mainland media source noted that Capital Group has been buying Mainland-listed Wuxi AppTec, which popped +8.69% today.

CATL was the most heavily traded stock by value in Mainland China, gaining +4.94% on the release of its new 1,000-kilometer range battery. There was also chatter that Li Auto will be using the battery, which led Li Auto to gain +5.9% in Hong Kong.

Buyers beat out short-sellers in Hong Kong as short sale volume was up today but fell to 15% of Hong Kong turnover from the low 20% range of late. I think China’s strong performance could become very uncomfortable for managers underweight the space as we head into quarter-end. That thesis seems to be playing out nicely!

MSCI released its annual country classification results with no word on further China A inclusion nor any upgrade of South Korea to developed market status. Meanwhile, Hong Kong Exchange & Clearing (HKEX) listed its first MSCI China A50 futures contract last year, which checks the box on one MSCI issue. The other big issue is China’s practice of delivering cash on trade day (T+0) versus most markets, which deliver the cash within two days (T+2) or one day (T+1)…