Divergent China Returns, PBOC Releases E-CNY Report

New Keys

Asia was a sea of ​​red over concerns over the spread of the delta variant and the poor performance of US stocks on Friday, although volumes were weak. Chinese investors established in China were less pessimistic because the mainland market was in decline, but only marginally. Foreign investors in China, who primarily use stocks from Hong Kong and the United States, were much more pessimistic, which is not surprising given the constant barrage of negative stocks in the United States.

Healthcare outperformed in Hong Kong and China, while the EV ecosystem was mixed, with automakers and battery makers recording sales despite maintaining metal inventories. Nio and Li Auto will be listed in Hong Kong following the example of Xpeng.

Chinese internet names listed in Hong Kong were weak, although sell-side analysts were increasingly vocal about the attractive valuations of the space.

Concerns about real estate developer Evergrand have resurfaced. I found it interesting that a mainland source noted the first ever personal bankruptcy in China with a Mr. Liang from Shenzhen winning the distinction.

On Sunday, June, imports of corn and soybeans were reported. Both categories increased from May.

Foreign investors today were active buyers of mainland stocks, while mainland investors were net sellers of Hong Kong stocks.

On Friday, the PBOC released a white paper titled “Advances in E-CNY Research and Development in China.” We now know that the Chinese digital renminbi will be called E-CNY. The report notes that 66% of all transactions in China are made via mobile payment according to a 2019 PBOC survey. In a heartbreak for the conspiracy theorist who saw the E-CNY as a threat to dollar dominance US, the E-CNY will initially only be available for domestic transactions. E-CNY is also not a threat to mobile payment wallets like Alipay or WePay, as it is simply a currency. Like M0, it will not bear interest.

H-Share update

The Hang Seng Index and Hang Seng TECH Index opened lower and stayed there to close at -1.84% and -2.4%, respectively, on a volume 7% lower than on Friday, i.e. 87% of the one-year average. The 208 Chinese companies listed in Hong Kong and in the MSCI China All Shares index fell by -2.07% with health +0.095 while discretionary -3.22%, communication -2.6%, real estate -2.6%, commodities -1.46%, financials -1.25% and materials -0.99%. The most traded shares in Hong Kong by volume were Tencent, which fell -2.57%, Meituan, which fell -5.02%, Alibaba HK, which fell -3.25%, HK Exchanges , which fell -0.38%, Xiaomi, which fell -0.52%, AIA down -3.28%, BYD down -1.98%, Ping An Insurance down – 1.29%, minimum wage down -3.6% and Wuxi Biologics down -0.21%. Mainland investors today sold $ 229 million of Hong Kong shares through Southbound Stock Connect, with southbound trading accounting for 13.3% of Hong Kong’s revenue.

A-Share Update

Shanghai, Shenzhen and the STAR board had a choppy session ending -0.01%, -0.07% and -0.72% respectively, with volume down -4.84% from Friday, 124% of the one-year average. The mainland’s 532 stocks of the MSCI China All Shares index fell -0.14% with healthcare + 2.2%, discretionary goods + 0.41% and commodities +0, 07% while real estate -2.21%, materials -1.67%, communication -1.63%, utilities -1.08% and energy -0.69%. The mainland’s most traded stocks by value were China Northern Rare Earth, which gained + 2.36%, CATL, which fell -1.41%, Canfeng Lithium, which gained + 0.98%, BYD, which gained + 0.47%, Hoperun Software, which fell -13.73%, Longi Green Energy which fell by -0.99%, COSCO Shipping which gained + 3.25%, Tianqi Lithium which fell by -3.29%, ZTE which gained + 5.77% and Shenghe Resources which fell by -2.9%. Northbound Stock Connect volumes were moderate / high as foreign investors purchased $ 674 million in mainland stocks, with northbound trading accounting for 5.7% of mainland revenue. Bonds rallied, the CNY weakened against the US dollar and copper fell.

Last night’s exchange rates, prices and yields

  • CNY / USD 6.49 vs. 6.48 Friday
  • CNY / EUR 7.66 vs. 7.65 Friday
  • Yield on 1-day government bonds 1.70% vs. 1.72% Friday
  • 10-year government bond yield 2.95% vs. 2.84% Friday
  • 10-year Development Bank of China bond yield 3.34% vs. 3.34% on Friday
  • Copper price -0.38% overnight

About KraneShares

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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