China Market Update: Alibaba, Tencent, & Meituan Are Buying Their Stock. Are You?

Key News

Asian equities were higher except for Mainland China on light volumes and little news as the US dollar strengthened overnight.

Hong Kong grinded higher, led by volume leader Alibaba, following an interesting day in US-listed China ADRs yesterday, which opened higher, started sliding mid-morning, and then rebounded strongly. A sell-side analyst noted Alibaba has several “technical catalysts” including Southbound Stock Connect inclusion, recent cooperation with Tencent’s WeChat Pay, and their new E-Commerce commission fee. The Alibaba-Tencent cooperation that goes into effect today was a Mainland news item.

Another investment bank reiterated its emerging market overweight and underweight, including China internet stocks as a top pick. Like us, they have noticed that not all Chinese companies are growing revenue and EPS, but the internet stocks are.

After the close, Bloomberg News reported that plans to allow the refinancing of $5.3 trillion Chinese mortgages could occur by month end, which is sooner than anticipated. The massive refinancing would free cash for households, with some of that going into consumption, though the move will weigh on banks’ profitability.

Interestingly, a commodity researcher noted the pickup in commodity prices, especially in China, after the recent price decline. As I said on Twitter yesterday (@ahern_brendan), Chinese oil import volumes have increased, though many incorrectly look at the value of oil import prices, which declined due to the fall in oil prices. Chinese demand remains robust, though I’ll speak to our partners who are commodity experts at Mount Lucas Management (@DaveAspell) for further clarity and insight. Investor positioning in both China and commodities are likely at or near all-time lows, making them ripe for a rip, in my opinion. That is some good news, right?

Hong Kong’s most heavily traded stocks by value were Alibaba, which gained +2.15% on HKD 3.5128 billion ($450 million) worth of net buying via Southbound Stock Connect, Meituan +2.43% which bought 4mm shares today as their impressive buyback continues, Tencent +0.65% which bought 2.68mm shares today as their impressive buyback continues, AIA +3.67% and energy giant CNOOC +1%. Notice a theme here? Alibaba bought 711,300 of their US ADRs yesterday, accounting for 6.2% of the ADR’s volume. Internet names were largely higher, though EV/auto was off as Brilliance China Auto’s Chairman resigned, sending the stock -12.2%.

Mainland China remains mired in its funk as mega-caps stocks held up much better than mid and small except for Kweichow Moutai -3.26% and peer Wuliiangye Yibin -2.28% on chatter of light sales heading into the big Chinese holiday. The National Team‘s favored ETFs had light volumes. The Mainland stock market remains a thumbs down on the government’s stimulus policies as consumer confidence remains in the doldrums. Hopefully, the mortgage refinancing will release some animal spirits!

The Hang Seng and Hang Seng Tech gained +0.77% and +0.7% on volume -13.33% from yesterday, which is 89% of the 1-year average. 294 stocks advanced, while 183 declined. Main Board short turnover declined -17.72% from yesterday, which is 72% of the 1-year average, as 14% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Value and large caps outperformed growth and small caps. Top sectors were mate4rials +1.73%, discretionary +1.1%, and financials +0.78%-1.09%, staples -0.85%, and retailing, materials, and insurance, while food/staples, household/personal products, and food/beverages/tobacco were the worst. Southbound Stock Connect volumes were light as Mainland investors bought $394mm of Hong Kong stocks and ETFs, with Alibaba a large net buy, CNOOC and Tencent small net buys, and China Mobile a small net sell.

Shanghai, Shenzhen, and STAR Board fell -0.17%, -0.48%, and -0.82% on volume +3.18% from yesterday, which is 66% of the 1-year average. 2,315 stocks advanced, while 2,491 declined. Value and large caps “outperformed”/fell less than growth and small caps. The top sectors were energy +1.09%, financials +0.25%, and utilities +0.2%, while staples -2.69%, communication -1.63%, and healthcare -1.61%. The top sub-sectors were water, highway, and marine/shipping, while liquor, chemical, and biotech were the worst. Northbound Stock Connect volumes were light. CNY and the Asia dollar index fell versus the US dollar. Treasury bonds fell. Copper and steel gained.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.12 versus 7.11 yesterday
• CNY per EUR 7.84 versus 7.85 yesterday
• Yield on 10-Year China Government Bond 2.10% versus 2.10% yesterday
• Yield on 10-Year China Development Bank Bond 2.19% versus 2.20% yesterday
• Copper Price +0.95%
• Steel Price +2.23%