Vice Premier Liu He’s speech sends stocks flying
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Asian stocks posted small gains while the Hang Seng Index +9.08% posted the strongest day in over a decade. Hong Kong’s gains were led by internet stocks like the Hang Seng Tech Index +22.6% while Shanghai +3.48% and Shenzhen +4.32% after reversing morning losses. What happened? Vice Premier Liu He, who might recognize as China’s trade envoy who is the No. 3 in the Chinese government behind President Xi and Premier Li, delivered a speech to the Financial Stability and development of the State Council, as reported by mainland media source Xinhua. Below are quotes and my interpretation of what was said.
- “Concrete actions need to be taken to support the economy in the first quarter…noting that monetary policy should take the lead…” – Policy stimulus and support ahead.
- “Chinese and US regulators have maintained good communication and made progress. Both parties are working on a concrete cooperation plan. – HFCAA/US ADR delisting resolved. The CSRC, China’s SEC, has already issued a statement saying that it “will continue to strengthen communication with US regulatory agencies and strive to reach an agreement on the supervision of Sino-US audits as soon as possible”.
- “…supporting various companies to seek listings in the overseas market”, – IPOs in the United States and Hong Kong are permitted.
- “For real estate companies, it is necessary to study and propose in a timely manner effective solutions for the prevention and mitigation of risks and to propose accompanying measures for the transformation towards a new approach to development” – S’ ensure that over-leveraged property developers do not cause a financial crisis and prevent them from doing so in the future.
- “…the relevant authorities…are actively introducing market-friendly policies and cautiously introducing policies with a contractionary effect.” – Support and not hinder!
- “Authorities must react in a timely manner to issues that attract market attention” – Make no mistake!
Specific to Internet companies, especially large companies called “platform economy”:
- “As far as the platform economy is concerned, relevant departures should improve established plans to govern the sector.” They should make steady progress and complete the rectification work on the big platform companies as soon as possible through standard, transparent and predictable regulation. – Internet regulation should not be done in an ad hoc/mole swoop approach. It should also end as soon as possible.
- “The ‘red lights’ and ‘green lights’ should promote the steady and healthy development of the platform economy and improve its international competitiveness.” Regulation should support businesses rather than hinder them. Interesting to note the inclusion of internet companies to go “international”.
Very good news! Investors will want to see tangible follow-ups in the weeks and months ahead. For two thousand years, China had a large government bureaucracy that allowed the emperor to rule such a large country before modern technology. We want to see that bureaucracy embrace that message. The departure of the CSRC is a strong message that this new approach has been heard. Let’s see what we hear from other regulators in the days and weeks ahead.
There were two other catalysts:
- News reports of a move away from China’s quarantine/lockdown policies. Without an effective vaccine, lockdowns have been the only solution to prevent the spread. This has dampened consumption which we need to see pick up as the global stimulus wanes, which will reduce demand for the global factory (Chinese exports!).
- Increased denial of Russian support. As we noted, the narrative that China and Russia are somehow BFF is wrong. China does not control Russia in any form or fashion. China has a strong economic incentive to see a peaceful resolution to the horrible situation in Ukraine although there is someone who can stop it and they are in Moscow.
The Hang Seng Index was up for the day but turned vertical on the Liu He release closing +9.08% on volume +8.35% from yesterday, or 208% of the 1-year average. It was a broad rally with 486 advances and only 26 declines as internet stocks absolutely flew like Tencent +23%, Meituan +32%, Alibaba HK +27% etc. Tencent saw a slight influx of Mainland investors after yesterday’s big buying, Meituan saw a small net selling and Li Auto saw a small net buying on the second day of Southbound Stock Connect. It should be noted that the volume of short selling in HK rose today to a 52-week high after high levels last week. There could be more pain in store for short sellers.
Shanghai +3.48%, Shenzhen +3.62% and STAR +2.93% on volume +6.03% from yesterday, or 113% of the 1-year average. Keep in mind that the mainland hasn’t fallen as much as HK/US stocks, so the rebound was a little less significant today. The magnitude was absurd as 4,070 stocks advanced and only 336 declines. Overseas investors sold -$12.958 million worth of stocks today via Northbound Stock Connect. Whoops ! The CNY rose against the US dollar from 6.37 to 6.35 yesterday while bonds were flat and copper +0.25%.
- Alibaba is well positioned to benefit from the upcoming IPO of Indonesian Goto Gojek Tokopedia (GOTO) on April 4and. Alibaba owns 8.8% of non-executive shares as the company will raise about $1.26 billion from investors by selling 52 billion shares on the Indonesia Stock Exchange, potentially making it the fourth largest company.
- Kingsoft Cloud (KC US) announced yesterday that it is exploring a dual listing on the HK Stock Exchange.
- Bilibili (BILI US) also announced that it will make its HK listing a dual primary from a secondary today. This could pave the way for HK listing to be added to Southbound Stock Connect.
Last night’s exchange rates, prices and yields
- CNY/USD 6.35 vs. 6.37 yesterday
- CNY/EUR 7.00 vs. 7.00 yesterday
- 10-year government bond yield 2.80% vs. 2.82% yesterday
- China Development Bank 10-year bond yield 3.05% vs. 3.00% yesterday
- Copper price +0.25% overnight