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Wealth Beat News > Investing > Premier Li Puts Final Nail In Coffin For Internet Regulation
Investing

Premier Li Puts Final Nail In Coffin For Internet Regulation

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Last updated: 2023/07/12 at 3:07 PM
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Key News

Asian equities were mixed on light volumes in advance of today’s US inflation release.

Contents
Key NewsLast Night’s PerformanceLast Night’s Exchange Rates, Prices, & Yields

Premier Li met with “platform economy” executives overnight. This is the government’s term for internet companies. Li proclaimed that the companies are “conducive to expanding demand and employment”. The Premier recommended that local governments provide a fair environment, help the companies develop the economy and promote employment, a key issue this year. He also solicited their opinion on how the government can help the companies. Meanwhile, the National Development and Reform Commission (NDRC) praised Alibaba, Tencent, Meituan, and other internet companies for their technological prowess and contribution to the economy. We can firmly put the final nail in the coffin for China’s internet regulatory cycle. An Ant IPO would add an exclamation point, as their approval for a financial services license in theory paves the way for an IPO.

Internet stocks had a strong day in Hong Kong prior to this news as Hong Kong’s most heavily traded stocks by value were Tencent, which gained +1.86%, Alibaba, which gained +1.24%, Meituan, which gained +4.34%, BYD, which fell -1.06%, Kuaishou, which gained +3.26%, and Xpeng, which gained +2.49%.

China’s internet regulation and US-China political issues have been headwinds to the space. Recent developments should allow institutional investors to come back into the space. These investors historically love the growth prospects of internet stocks versus value sectors in China. Remember, we have Q2 earnings season kicking off in August, with an easy Q2 2022 comparison due to the Shanghai lockdown. The US dollar’s strength has been a headwind on the space as well, which is dependent on US Fed policy, though CNY gained overnight versus the US dollar, closing at 7.19 CNY per USD.

Main Board short turnover was 21% of total turnover, as Tencent, Alibaba, Meituan, Xpeng, and Baidu all saw short turnover at over 20% of total turnover. We do not know whether these are new shorts being put on, short covering, or part of the hedging process for Hong Kong’s massive structured products market. Aggregate volumes were light, though we’d like to see an up day on higher volume.

While growth stocks outperformed in Hong Kong, the opposite occurred in Mainland China, where value stocks and sectors outperformed. Hot stocks and sectors such as AI, Big Data and other tech buzz words were whacked for no reason in a dramatic afternoon selloff. Mainland volumes were higher in a not-so-good sign. My sympathies to active managers in the China A space as violent value/growth rotations like today are common. The downdraft is interesting considering yesterday’s better-than-expected economic data. Climate czar John Kerry is rumored to be heading to China this Sunday.

As we mentioned in our webinar yesterday, the Nasdaq 100 will rebalance Monday, July 24th. Its largest holdings have risen so much more than the other stocks in the index that they are violating index methodology concentration limits. I agree that the total sale of $30 billion worth of mega cap stocks is a drop in the bucket. Having watched sector and stock weights within indices for two decades, historically moves such as this one turn out to be, in hindsight, the proverbial canary in the coal mine. Other instances include technology in the S&P 500 in 1999, financials in the S&P 500 in 2007, and energy in the S&P 500 in 2020.

Full disclosure: I know nothing about Dutch politics. However, I do find it interesting that the Prime Minister lost his job due to domestic issues and, at the same time, was a vocal critic of China. Ultimately, domestic issues are what voters care about as you can only distract them by pointing at China for so long. Did you know that neither Reed Smoot, Willis Hawley, nor Herbert Hoover were re-elected in 1932?

The Hang Seng and Hang Seng Tech indexes gained +1.08% and +1.96%, respectively, on volume that decreased -0.07% from yesterday, which is 74% of the 1-year average. 233 stocks advanced while 240 declined. Main Board short turnover increased +21.29% from yesterday, which is 95% of the 1-year average, as 21% of turnover was short turnover. Growth factors outperformed value factors as large caps outperformed small caps. The top-performing sectors were communication services, which gained +2.02%, consumer discretionary, which gained +1.62%, and information technology, which gained +1.51%. Meanwhile, healthcare fell -1.34%, industrials fell -0.35%, and real estate fell -0.21%. The top-performing subsectors were food, retail, and software. Meanwhile, pharmaceuticals, healthcare equipment, and capital goods were among the worst-performing. Southbound Stock Connect volumes were light as Mainland investors sold a net -$68 million worth of Hong Kong stocks as Kuiashou was a very small net sell, Tencent, Meituan, Xpeng, and Zhejiang Shibao were all small net buys.

Shanghai, Shenzhen, and the STAR Board fell -0.78%, -1.08%, and -1.64%, respectively, on volume that increased +18.27% from yesterday, which is 101% of the 1-year average. 1,038 stocks advanced while 3,642 declined. The growth factor outperformed the value factor, while small caps “outperformed” large caps. The top-performing sectors were energy, which gained +0.64%, materials, which gained +0.31%, and utilities, which gained +0.24%. Meanwhile, real estate fell -2.06%, communication services fell -2.06%, and technology fell -2%. The top-performing subsectors were petrochemicals, fertilizer, and oil and gas. Meanwhile, computer hardware, communication equipment, and telecom were among the worst-performing. Northbound Stock Connect volumes were light as foreign investors bought a net $68 million worth of Mainland stocks as LONGi Green Tech was a small net sell, and Foxconn and Kweichow Moutai were a small net buys. CNY and the Asia Dollar Index gained +0.25% and +0.26%, respectively, versus the US dollar, while Treasury bonds were sold. Steel gained while copper fell.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

  • CNY per USD 7.19 versus 7.21 yesterday
  • CNY per EUR 7.94 versus 7.93 yesterday
  • Yield on 1-Day Government Bond 1.35% versus 1.35% yesterday
  • Yield on 10-Year Government Bond 2.64% versus 2.64% yesterday
  • Yield on 10-Year China Development Bank Bond 2.76% versus 2.76% yesterday
  • Copper Price -0.50% overnight
  • Steel Price +0.44% overnight

Read the full article here

News July 12, 2023 July 12, 2023
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