Ant Alibaba Group accepts the fine, you can have the IPO next week, a week under review

a week in review

  • The Caixin PMI for June came in slightly better than expected at 50.5 vs. the expected reading of 50 and 50.9 in May.
  • BYD gained +4.48% after 253,046 vehicles were sold, bringing the first-half total to 1.25 million, with several new models introduced later this year. NIO gained +8.11% after selling 10,707 vehicles, Li Auto gained +8.49% after selling 32,575, Xpeng gained +16.5%, Geely Auto gained +6.28%, Guangzhou Auto +6.42%, Great Wall Motors gained + 7.47%.
  • Janet Yellen visited China amid discussions about restricting Chinese companies’ access to US cloud service providers, and Chinese Ambassador Xie Feng met with President Biden at the White House over the weekend.
  • Hong Kong-listed bank stocks had a very difficult week for a variety of reasons, which weighed on the broader markets.

Friday Home News

Asian stocks ended the week lower ahead of the release of US employment data this morning.

Reuters reported this morning, before the market opened in the US, that the People’s Bank of China (PBOC) has fined Ant Group (7.12 billion CNY) $984 million. Ant’s pulled IPO was because their IPO prospectus did not include the impact of soon-to-be-issued regulation of the company and its fintech peers. The pulled IPO had nothing to do with Jack Ma’s criticism of government regulators. Can the news surrounding the company that has scored a high water mark in China’s Internet industry also mark the bottom? Fingers crossed because it reminds me of the Allman Brothers song “Back Where It All Begins”. The Ant fine means an IPO could be on its way, which should help Alibaba liquidate ownership of its 33% stake. The rumor lifted Alibaba’s HK stock class +3.44% in one of the few bright spots for HK stocks today. Mainland financial media pointed to a statement by Ant Group saying: “After receiving the administrative penalty decision from the financial management department, we sincerely accept it and firmly adhere to it, and we will enhance the level of compliance governance.”

Treasury Secretary Yellen’s visit to China began with her meeting with top US businessmen, which attracted media attention when she talked about the unfair competition faced by US companies in China. The sarcastic side asks me, “How well do ZTE and Huawei do in the US versus Tesla
And GM, Exxon Mobil, etc. in China? More important were her subsequent meetings with Premier Li, where she reiterated that the goal of the United States was not secession but ridicule followed by meetings with former Vice Premier Liu He and dinner with former senior banker Zhou Xiaochuan.

Climate czar John Kerry is expected to visit China next week as the green shoots in US-China political relations focus on areas of easy agreement: economic relations and climate. He also headed to China’s PCAOB for the second round of auditor reviews, which will include PWC
(Alibaba and Tencent auditor), E&Y (Baidu) and Deloitte ( after visiting KPMG (YUM China) in the fall. Yes, they will find deficiencies, but it should help auditors stick to the move forward. Remember, it was a quiet week due to the US holiday to Hong Kong although we did experience a “weird trend” with Hong Kong more than China, though not like China’s ADR listed in the US yesterday. Interestingly, mainland investors seem to be reducing their holdings of Hong Kong-listed China/HK stock ETFs rather than individual stocks.

Today, Tencent was a strong net buy, although four ETFs were net sells as I will be doing more homework work this weekend. Mainland China was on a quiet night though not as close as Hong Kong. Premier Li’s State Council promise of more economic support failed to raise morale as everything was recent and no actionable plan/items. Shanghai closed just below 3,200 at 3,196, while Shenzhen is at 2030. Mainland social media star Hu Xijin continues his promotion of investing in mainland stocks even though he picked a difficult week to make his first investment. He seems to be trying to encourage investment in China, which would be a good alternative/complement to traditional destinations for savings such as real estate, bank accounts, and the bond market. At least, his entry point is telling us something!

Hang Seng and Hang Seng Tech are down -0.9% and -1.21% in volume +2.23% from yesterday, which is 88% of the first year average. 113 stocks rose, while 349 stocks declined. Short volume on the main board is up 4.27% from yesterday, which is 96% from the one-year average, where 18% of volume was short. The value factor outweighed the growth factor as the big hats outperformed the small companies. The discretionary sector was the only positive sector gaining +0.16%, while utilities -2.95%, technology -2.39%, and commodities -1.65%. The top sub-sectors were retail, healthcare equipment, and household products, while automobiles, semi-finished, and tech devices were the worst. Southbound Stock Connect volumes were light as mainland investors sold – $535m of HK shares while Tencent was a moderate/strong buy, Meituan a moderate/light buy, XPeng a small net buy, China Mobile and SMIC a small net sell.

Shanghai, Shenzhen, and Starboard are all down -0.28%, -0.67%, and -1.02% on a turnover of -2.46% from yesterday, which is 88% from the first-year average. 1,783 shares rose, while 2,815 shares declined. Value factors outperform growth factors as large companies outperform small companies. The top sectors were Utilities +0.74%, Energy +0.72%, Financials +0.38%, Technology -1.13%, Telecom -0.73%, and Discretionary -0.57%. The top sub-sectors were road transport, agriculture, and retail, while computers, power generation equipment, and semis were half the worst. Northbound Stock Connect volumes were light/moderate as foreign investors sold – $624m, with Kweichow Moutai net selling medium/large, Foxconn net selling very small, and Yangtze Power net buying very small. The Chinese Yuan rose +0.2% against the US dollar to reach 7.23 while the Asian Dollar Index posted small net gains. Treasury bonds are idle, along with copper and steel.

last night’s performance

Currency exchange rates, prices, and returns

  • CNY per US dollar 7.23 vs. 7.23 yesterday
  • CNY 7.87 each, against 7.87 yesterday
  • The 10-year government bond yield is 2.64% versus 2.63% yesterday
  • Yield on CDB 10-year bonds 2.77%, up from 2.78% yesterday
  • Copper price -0.24% overnight
  • Steel price -0.67% overnight