Asian stocks are broadly higher, wind and solar stocks outperform, weekly review

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Weekly review

  • Mainland Chinese stock markets were closed Monday and Tuesday this week for the Mid-Autumn Festival.
  • The woes of Chinese mega real estate developer Evergrande weighed on Hong Kong real estate stocks and banks on Monday with loans to the developer. Join us for an Evergrande briefing this next Wednesday.
  • Evergrande announced Wednesday that they will make a payment to CNY bondholders on a $ 35.9 million coupon due Thursday. However, the company must negotiate with the holders of USD bonds to avoid default.
  • Asian stocks were mostly higher on Thursday as concerns about systemic risk posed by Evergrande eased.

Key Friday news

Asian stocks ended a week down broadly higher with China and Hong Kong falling as investors pulled a few tokens off the table ahead of the weekend. A mainland institutional broker succinctly presented the Evergrande situation, saying that “most onshore investors strongly believe that this is unlikely to trigger systemic risk.” Why? This is not the regulators’ first rodeo as, unfortunately, they have faced similar situations in the past. At the same time, Evergrande will not go away, as bond and loan payments will require negotiating lower interest payments and extending maturities.

Our friend Larry McDonald from The Bear Traps Report thinks Evergrande looks like Greece in 2015. The EU didn’t want Greece to spray $ 200 billion in loans from EU banks, so it extended the maturity of Greek debt and reduced interest payments. This is a likely outcome for Evergrande.

Mainland markets fell overnight, although shares in wind, solar, alcohols and rare earths had a good day while lithium shares were down. Meanwhile, a rather similar situation unfolded in Hong Kong. Tencent had left although mainland investors were buyers while the company bought shares (again). Reports that Alibaba is selling an online video company weighed on its shares, but the end reality is that Alibaba’s efforts outside of e-commerce have not been significant revenue drivers.

I should have mentioned that our buddy Ken in Hong Kong helped shape our balanced take on Evergrande’s outcome yesterday. Ken has pointed out to his clients that we cannot assume that Evergrande is going the way we want it to just because it is the rational outcome. We can hope so, but we just can’t say for sure.

Gaotu Techedu (GOTU US) released its second quarter results on Wednesday. First of all, I don’t recommend anyone to buy this stock. I found the conference call interesting as most left the after-school tutoring space for deaths due to the restrictions. The company has shown a level of optimism and willingness to reinvent itself in accordance with the new rules. It was somewhat surprising that only two analysts asked questions on the call. A review of the publication of the results and the transcript of the call for results revealed several interesting information. Most would be shocked to learn that the company’s second-quarter revenue increased + 35.3% year-on-year (YoY) to a record high of RMB 2.32 billion while spending Sales have fallen “substantially” as the company “has completely stopped advertising in the news feed” due to the education industry experiencing “changes in recent months.” The company is pivoting to focus on “vocational education and STEM”.

H-Share update

The Hang Seng rebounded in the room but sold strongly at the close -1.3% although volumes were down -17.59%, which is only 86% of the year-over-year average. The 210 Chinese stocks listed in Hong Kong and within the MSCI
MSCI
The China All Shares index lost -1.49%, led down by utilities -3.96%, energy -2.5%, real estate -2.45%, discretionary goods -1 , 79%, industry -1.51% and technology -1.5%. The most traded stocks in Hong Kong by value were Tencent, which fell -0.65%, Meituan, which gained + 0.82%, Alibaba HK, which fell -2.76%, AIA, which fell by -2.15%, Ping An Insurance, which gained + 2.17%, Kuaishou Technology which fell by -9.67%, Li Ning, which fell by -5.44%, Xiaomi, which fell by -1.78%, Dongyue Group, which fell -19.92%, and Hygeia Healthcare, which fell -8.32%. Southbound Stock Connect volumes were moderate / high, with mainland investors buying $ 655 million in Hong Kong shares, with Southbound Connect trading accounting for 14.6% of Hong Kong revenue.

A-Share Update

Shanghai, Shenzhen and the STAR Board closed at -0.8%, -0.7% and + 0.82% as volume declined -2.67% while remaining 133% of average on a year. The mainland’s 541 stocks within the MSCI China All Shares index -0.25% as commodities + 3.19%, healthcare + 0.95% and communication + 0.8% while than energy -5.3%, materials -3.47% and utilities -1.19%. The mainland’s most traded stocks by value were Kweichow Moutai, which gained + 3.61%, China Northern Rare Earth, which fell -3.61%, China Three Gorges, which gained +2, 16%, Inner Mongolia BaoTou Steel, which fell by -5.33%, Wuliangyee Yibin which gained + 3.14%, China Rare Earth which gained + 10%, Tianqi Lithium which fell -1.47%, COSCO Shipping which gained + 2.97%, Longi Green Energy which gained + 2.02% and Sungrow Power Supply which increased by + 8.43%. Northbound Stock Connect volumes were moderate / high, with overseas investors buying $ 422 million in mainland stocks today, with Northbound Connect trading accounting for 5.4% of mainland revenue.

Last night’s exchange rates, prices and yields

  • CNY / USD 6.47 vs. 6.46 yesterday
  • CNY / EUR 7.57 vs. 7.58 yesterday
  • 1-day government bond yield 1.50% vs. 1.55% yesterday
  • 10-year government bond yield 2.87% vs. 2.86% yesterday
  • 10-year Development Bank of China bond yield 3.19% vs. 3.19% yesterday
  • Copper price + 0.28% overnight

Krane Funds Advisors, LLC is the investment manager of ETF KraneShares. Our range of China-focused ETFs provide investors with solutions to understand the importance of China as an essential part of a well-designed investment portfolio. We strive to deliver innovative strategies, first to the market, which have been developed on the basis of our strong partnerships and our in-depth knowledge of investing. We help investors stay on top of global market trends and aim to provide meaningful diversification. Krane Funds Advisors, LLC is majority owned by China International Capital Corporation (CICC).


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