China Market Update: It's The End Of The World, Hong Kong & Chinese Stocks Feel Fine
Asian equities declined following the US attack on Iranian nuclear facilities, the threat of a potential counterattack, and concerns over Middle East oil transportation out of the Persian Gulf (hence the REM song reference in today's title).
Despite the strength of the US dollar, Hong Kong, Mainland China, and Malaysia outperformed.
A key factor in the resilience of Hong Kong and Mainland China was the start of the 12th two-and-a-half-day meeting of the 14th Standing Committee of the National Committee of the Chinese People's Political Consultative Conference (CPPCC). Try saying that five times fast! The meeting, attended by the upper echelons of China's government, will discuss 'further deepening economic system reform and promoting China-style modernization,' with topics including 'deepening economic system reform and promoting China's modernization,' 'promoting fertility support,' and 'promoting artificial intelligence.' Policy expectations are light, though I suspect last year's meeting set in motion the September announcements by the People's Bank of China (PBOC) and Politburo regarding real estate policy.
It was hard not to notice that consumer-focused Hong Kong stocks and sub-sectors, such as automobiles, electric vehicles (EVs), hybrids, travel, hotels, and restaurants, performed well. Alibaba declined 0.81% despite integrating its online travel platform, Fliggy, and restaurant delivery service, Ele.me, into its core E-Commerce business, driven by strong orders. Alibaba's weakness may also have been influenced by Meituan's 2.18% gain after the company announced an expansion of its 'instant retail business,' leveraging its massive restaurant delivery network and further overseas expansion in Saudi Arabia.
Another factor was the Hong Kong relisting initial public offering (IPO) of Mainland-listed Zhejiang Sanhua Intelligent Controls. While more supply in the market requires capital from somewhere, it was interesting that the IPO was down despite being heavily oversubscribed: 747 times by retail investors and 23 times by institutional investors.
Premier Li signed a State Council order requiring internet platforms to submit tax-related information, but this does not appear problematic, as it focuses on tax reporting by the companies themselves.
The Wall Street Journal published a nonsensical article on Wall Street's lost love affair with US listings of Chinese companies. Meanwhile, Southbound Stock Connect saw strong inflows, with Mainland investors net buying $1.005 billion.
Hong Kong- and Mainland-listed semiconductor stocks had a strong day following Friday's Wall Street Journal article reporting that the US will pressure ASML and Taiwan Semiconductor Manufacturing Company (TSMC) to stop producing in China. Mega-cap banks also performed well, as the exchange-traded funds (ETFs) favored by the National Team saw strong volumes. Beverages and food stocks were down, with Kweichow Moutai off 0.61%.
I thoroughly enjoyed listening to the Dwarkesh Podcast interview with Arthur Kroeber of Gavekal Dragonomics. You'll learn more about China from listening to that two-and-a-half-hour episode than from a lifetime of reading about China in the Western media. I don't agree with everything, but on the big picture, I found it very insightful and aligned with my own thinking.
I also enjoyed the BG2 Podcast, hosted by Altimeter's founder and CEO Brad Gerstner and Benchmark's former general partner Bill Gurley, interviewing Coatue's Laffont brothers on artificial intelligence (AI), public and venture capital markets, macroeconomics, US debt, crypto, IPOs, and more. Coatue hosted its 2024 East Meets West Conference last week, focusing on AI. The investment firm generously provides its deck for free on its website, which I recommend checking out.
Yes, I had a long weekend watching my kids' sports.
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