Tencent was Hong Kong’s most heavily traded by value gaining +1.12% followed by Alibaba HK +6.43% as Tencent’s WeChat Pay is officially usable on Alibaba’s e-commerce websites. I noticed that on Alibaba’s international website there is a WeChat button though I candidly don’t know if that is a new addition.

The walled garden or moats the companies have built to hurt their rivals are coming down as the companies adhere to regulations. Tencent saw net buying from Mainland investors overnight for the 11th out of the last 12 trading days while the company bought 220k shares today. Real estate stocks rebounded strongly with developer Sunac (1918 HK) gaining +14.81% after the company denied having asked for government assistance and buying back bonds.

The Mainland market was mixed overnight as yesterday’s high-flying liquor stocks were hit with profit-taking while energy, real estate, and utilities had strong days. The PBOC spoke to protecting housing from a financial crisis.

Evergrande’s situation isn’t going away as restructuring bond and loan repayments with creditors will be arduous however recognition of the firm’s size is on policy maker’s radar. Evergrande is being called Lehman’s moment, but it is more like their Bear Stearns moment as there is no Lehman without Bear going down. Stopping the first domino from dropping is job #1 in China.

All things energy and utility-related in the Mainland market such as coal, oil, wind, solar, hydro, and electric generation outperformed China’s high energy prices. The China futures price for thermal coal delivery in January, increased +4.56% overnight to the US $199 versus a 52-week low of US $91.

Chatter is coal stockpiles weren’t replenished, driven by China’s carbon commitments and increased safety regulation following several mining accidents in the spring. Mongolia coal imports have been slowed by covid production issues while China has limited Australian coal imports due to political rhetoric. The Chairman of State Grid, China’s largest public utility, stated the company would follow “important instructions of general secretary Xi Jinping”. Ultimately utilities might have to eat high prices and not pass them along to consumers while doing everything they can to ramp up production.

China Daily, a Mainland media source, noted that “electricity use in factories are currently being enforced in 10 provincial-level regions, including Jiangsu, Guangdong and Zhejiang provinces.” Those controls could be eased “as government efforts to contain the coal price surge and improve coal supplies for power plants are expected to improve”. Lithium stocks were hit again in the Mainland as battery giant CATL fell. Foreign investors were buyers of $741mm of Mainland stocks overnight.

The Southbound Bond Connect kicked off last night allowing Mainland investors access to Hong Kong’s bond market. No better time for our webinar tomorrow with our partner Nikko Asset Management to discuss the Evergrande situation.

H-Shares Update

The Hang Seng opened higher and kept going closing +1.2% on volume off -0.96% from yesterday which is 86% of the 1-year average. The 210 Chinese companies listed in Hong Kong within the MSCI China All Shares gained +2.24% led by real estate +6.03%, energy +4.68%, utilities +3.71%, discretionary +3.67%, materials +1.44%, tech +1.34%, communication +1.13% and healthcare +1.1%. Hong Kong’s most heavily traded by value were Tencent +1.12%, Alibaba HK +6.34%, Meituan +1.37%, energy giant CNOOC +5.78%, Xiaomi +0.69%, Wuxi Biologics +3.04%, Ping An +0.18%, AIA -0.46%, China Merchants Bank +1.86% and Li Ning -1.48%. Southbound Stock Connect volumes were moderate/high as Mainland investors bought $756mm of Hong Kong stocks as Southbound trading accounted for 13.8% of Hong Kong turnover.

A-Shares Update

Shanghai, Shenzhen, and Hong Kong diverged +0.54%, -0.18%, and -1.07% as volume fell -24.46% from yesterday which is 106% of the 1-year average. The 541 Mainland stocks within the MSCI China All Shares pulled a James Bond +0.07% led by energy +5.16%, real estate +4.84%, utilities +4.1%, and financials +1.62% while communication -1.14%, staples -1.11% and tech and healthcare -0.69%. The Mainland’s most heavily traded by value were Luzhou Laojia C +3.9%, China Three Gorges Renewables +8.43%, liquor company Kweichow Moutai -1.78%, liquor company Wuliangye Yibin -1.65%, broker East Money +4.13%, COSCO Shipping -5.95%, China Northern Rare Earth +0.16%, China Energy Engine flat, Tianqi Lithium -1.28% and battery giant CATL -2.55%. Northbound Stock Connect volumes were moderate as foreign investors bought $741mm of Mainland stocks today as Northbound trading accounted for 4.6% of Mainland turnover.

Last Night’s Exchange Rates, Prices, & Yields

*  CNY/USD 6.46 versus 6.46 yesterday
*  CNY/EUR 7.55 versus 7.56 yesterday
*  Yield on 10-Year Government Bond 2.88% versus 2.88% yesterday
*  Yield on 10-Year China Development Bank Bond 3.21% versus 3.19% yesterday
*  Copper Price -0.13% overnight

Krane Funds Advisors, LLC is the investment manager for KraneShares ETFs. Our suite of China focused ETFs provide investors with solutions to capture China’s importance as an essential element of a well-designed investment portfolio. We strive to provide innovative, first to market strategies that have been developed based on our strong partnerships and our deep knowledge of investing. We help investors stay up to date on global market trends and aim to provide meaningful diversification. Krane Funds Advisors, LLC is majority owned by China International Capital Corporation (CICC).