Business

China Market Update: Hong Kong IPOs Take Flight

October 24, 2024

CLN

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Asian equities were mixed overnight despite a stronger US dollar. Hong Kong and South Korea outperformed, while Thailand was closed for Chulalongkorn Day, a national holiday commemorating His Majesty King Chulalongkorn the Great’s passing.

Bloomberg’s article, and subsequently a South China Morning Post article, on an RMB 2 trillion stock market stabilization fund was cited as a positive catalyst for today’s Hong Kong rally and yesterday’s rally in US-listed China stocks, though I’ll take the under as this idea is far from “new”. It was spoken about a month ago.

The market gave plenty of reasons for a Hong Kong rally with positive financial results from Hong Kong Exchanges, up +1.22% on profit growing +7% year over year (YoY), toy maker Popmart, up +18.52% after a Hong Kong business update regulatory filing stating Q3 revenue will rise by +120% to 125% YoY.

Hong Kong IPOs are coming back in force. Bottled water company China Resources Beverage had a very successful IPO, up +15.07% with shares sold at the top of range raising $649 million as the IPO was oversubscribed more than 230 times. Meanwhile, Horizon Robotics’ IPO, which is scheduled for tomorrow, is expected to raise $696 million for the company and reports Hengrui Pharma may relist in Hong Kong with an IPO that could raise $2 billion. There were also reports that Chinese electric vehicle maker Chery will go public in early 2025.

If people can make money in Mainland China and Hong Kong markets, they will come back, which is arguably happening now. We continue to believe that growth stocks and sectors will lead the way higher , as evidenced by the makeup of today’s most heavily traded stocks by value in Hong Kong, which included Meituan, which was up +5.47%, Tencent, up +1.57%, Semiconductor Manufacturing (SMIC), which was down -1.85%, Alibaba, up +0.05%, and Xiaomi up +4%. Internet stocks had a good day, led by JD.com, up +2.98%, Kuaishou, up +0.96%, Trip.com, up +2.17%, Bilibili, up +3.7%, and Baidu, up +0.4%.

Electric vehicle (EV) and auto stocks outperformed as Geely gained +6.6%, Li Auto gained +6.34%, BYD gained +1.62%, XPeng gained +4.25%, and NIO gained +1.48%. EV ecosystem stocks were lifted by the Ministry of Industry and Information Technology (MIIT) press conference, mentioning the “promotion of new energy vehicles in rural areas,” “taking multiple measures to expand automobile consumption” through tax concessions, and support “international development” by responding to “trade barriers such as anti-subsidy investigations and high tariffs.” Year to date, through Q3, 21.47 million autos were made, with 21.57 million sold and 4.31 million exported, which is an increase of 27.3% YoY. The MIIT had a busy day as Apple CEO Tim Cook met with the agency in Beijing along with an interesting release stating Tesla and several foreign companies would be allowed to operate “value-added telecommunications services” with internet data centers cited as an example.

Mainland investors bought a healthy $1.21 billion worth of Hong Kong-listed stocks and ETFs, as Alibaba, GCL Tech, Tencent, and Xiaomi were all small net buys. The Mainland market had a good day, as the Shanghai closed above the 3,300 level. Solar had a strong day on reports the US may lower tariffs, which would be interesting if true.

President Xi and President Modi are scheduled to meet at the BRICS conference, which is positive!

New Oriental Education (EDU US) is trading lower after announcing financial results this morning, indicating a slight top line revenue miss, though adjusted net income and adjusted EPS beat analyst expectations.

In addition to the NPC date and agenda coming soon, we should also get the medium-term lending facility (MLF) rate, which is expected to be 2%, though I’d bet it will be lowered more than expected, similar to the loan prime rates.

The Hang Seng and Hang Seng Tech indexes gained +1.27% and +1.86%, respectively, on volume that increased +24.45% from yesterday, which is 225% of the 1-year average. 297 stocks advanced, while 186 declined. Main Board short turnover increased by +25.55% from yesterday, which is 111% of the 1-year average, as 11% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Growth and small capitalization stocks outperformed value and large capitalization stocks. All sectors were positive, except for energy, which fell -0.47%, and utilities, which fell -1.13%. Technology stocks gained +3.53%, consumer discretionary gained +2.25%, and communication services gained +1.42%. All sub-sectors were positive except for energy and media, while auto, retailing, and insurance were higher. Southbound Stock Connect volumes were high at 2X the average as Mainland investors bought a healthy $1.21 billion of Hong Kong stocks and ETFs with Alibaba, GCL Tech, Meituan, Tencent, and Xiaomi were small net buys while China Mobile was a small net sell.

Shanghai, Shenzhen, and the STAR Board rose +0.52%, +0.15%, and -0.68%, respectively, on volume up +0.75% from yesterday, which is 225% of the 1-year average. 2,463 stocks advanced, while 2,405 declined. Growth and small capitalization stocks outperformed value and large capitalization stocks. The top sectors were consumer staples, up +1.28%, consumer discretionary, up +0.87%, and industrials, up +0.86%, while communication services fell -1.45%, technology fell -0.47%, and energy fell -0.31%. The top sub-sectors were power generation equipment, aerospace/military, and auto, while education, cultural media, and software were the worst. Northbound Stock Connect volumes were high, just over 2X the average. CNY and the Asia dollar index fell versus the US dollar. Copper fell while steel rose.

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