New keys

Asian equity markets had a very strong night, with all markets in the green, with the majority of markets up more than +1%. Alibaba jumped as Softbank announced it had no plans to sell shares of Alibaba and had nothing to do with the company registering more shares. I have previously stated that the stock registration is likely driven by investors wanting to convert their US ADRs to Hong Kong stocks, which would require creating more ADRs first. Alibaba HK jumped +6.83% on Softbank’s statement as Hong Kong-listed internet stocks had a strong day.

The other big news is that electric vehicle (EV) maker XPeng’s Hong Kong share class was added to Southbound Stock Connect today, with the stock jumping 8% on volume of 8.751mm vs. yesterday’s volume of 1.999 mm (+337%). Below is an in-depth dive into Southbound Stock Connect and why it’s a big deal. The Hang Seng Index and Hang Seng Tech Index surged +2.06% and +3.65% respectively, led by Hong Kong internet stocks on volume up +8.68% from last year. yesterday, or 90% of the 1-year average. The advances outpaced the declines by more than 3 to 1, with all sectors in the green except for energy, which fell -0.41%. Growth stocks/sectors led the charge led by discretionary +4.86% driven by BABA, technology +3.46% and materials +3.34%. Wuxi Biologics -1.04% as investors are more worried about US government involvement than the reality of being on the unverified list.

This morning The Wall Street Journal published an article about the FDA reviewing a cancer drug from Eli Lilly because it was tested in China. It’s amazing to think that Americans who die of cancer are denied a cheaper drug for political reasons.

Interestingly, Tencent, which gained +2.72%, was a net sell in Southbound Stock Connect. Shanghai, Shenzhen and the STAR Board gained +0.79%, +1.61% and +0.52%, respectively, on volume up +5.97% from yesterday, or 88% of the average over 1 year. Mainland investors cheered the easing of restrictions on bank lending to property developers as growth sectors/stocks rebounded today.

It was fairly quiet in mainland markets as investors focused on the Olympics. Overseas investors bought $76 million worth of Mainland stocks through Northbound Stock Connect. An interesting publication was made by the Beijing Municipal Committee on a new “Implementation plan on optimizing birth policy to promote the long-term balanced development of the population”. Raising China’s birth rate from 1.3 to 2.1 will be a big push over the next few years. This piece talked about reducing the costs of having children such as nursery and childcare costs, improving maternity leave policies and “improving fertility”. However, there hasn’t been much ink on the housing, which is the real culprit, in my opinion. We’ll keep an eye on that!

Treasuries fell, the renminbi appreciated against the US dollar and copper fell 0.48%.

Southbound Stock Connect is the trading platform that allows mainland Chinese investors to buy stocks listed in Hong Kong. Mainland investor transactions via Southbound Stock Connect accounted for 14.6% of Hong Kong volumes today, which is slightly above average. Northbound Stock Connect is the opposite as it allows foreign investors to buy stocks listed in Shanghai and Shenzhen via Hong Kong. Southbound Stock Connect eligibility is added to a subset of Hang Seng indices. When US-listed Chinese companies re-list in Hong Kong, they chose whether they want Hong Kong to be their primary listing (Hong Kong is their legal and regulatory headquarters), a dual listing (split between HK and US States) and a secondary listing (the United States is still technically their legal/regulatory domicile). Pursuing a secondary listing is the easiest and fastest way to relist, which is why virtually every company has gone this route. Remember that the SFC, the SEC of Hong Kong, is a very strict regulator while the HKeX has strict listing standards. As mentioned in our interview with Marcia, a VIE expert and Hong Kong private equity lawyer, no shareholder class actions are allowed in Hong Kong, so the regulator and the stock exchange are paying close attention to IPOs. stock Exchange. I assumed that once Hong Kong is home to over 50% of outstanding shares, the city will become a hotbed for dual-listed names. There are only three companies that have been re-listed as dual primary: Xpeng, Li Auto and biotech stock Beigene. Interestingly, all state-owned enterprises listed in the United States have re-listed in Hong Kong with Hong Kong shares as their primary listing. There is clearly some discretion as to who enters Southbound as Li Auto re-listed in Hong Kong before Xpeng and has more shares held in Hong Kong than Xpeng. Beigene is already in Southbound Stock Connect. This will encourage more companies to switch from secondary listing to dual primary listing, as Tencent holds 6.49% of its Hong Kong shares held by mainland investors and Meituan 6.57%.

Last night’s exchange rates, prices and yields

• CNY/USD 6.36 vs. 6.37 yesterday
• CNY/EUR 7.28 vs. 7.28 yesterday
• 10-year government bond yield 2.73% vs. 2.72% yesterday
• China Development Bank 10-year bond yield 2.97% vs. 2.96% yesterday
• Copper price -0.48% overnight