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STAR Board & China AI Ecosystem Soar On Oracle Open AI News

usncan 3 hours ago

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📝 usncan Note: STAR Board & China AI Ecosystem Soar On Oracle Open AI News

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Key News

Asian stocks were largely higher, as Mainland China ripped higher, led by growth/tech stocks, and CNY’s rally versus the US dollar continues, closing at 7.1218 today.

Oracle’s Open AI announcement and the stock’s very strong performance positively affected Mainland China’s tech sector, STAR Board, growth stocks, AI, cloud supply chain, and related ecosystem stocks.

The Mainland’s big growth industry sector year-to-date (YTD) is comprised of tech hardware (electronic equipment, communication equipment +6.87%, computer hardware +6.23%), semiconductors +5.30%, and non-ferrous metals (precious metals, base metals +2.27%, mining), which today were joined by electric components +6.5%. These industries comprise the dominant three factors in China: momentum, growth, and liquidity.

There were monster/double-digit moves as the Mainland’s most heavily traded stocks by value were Victory Giant Technology +16.28%, Zhongji Innolight +14.28%, Eoptolink Technology +13.42% and Cambricon Technology +8.96%. See below the most heavily traded stocks by value (not volume).

I’m surprised that Hong Kong wasn’t as enthusiastic, though Mainland investors bought a very healthy $2.437B of Hong Kong stocks via Southbound Stock Connect. Yes, Hong Kong closed lower, though well off its intra-day lows, as the Hang Seng Index stayed above the 26,000 level.

Alibaba announced after the US close it will raise $3.2B by issuing a convertible bond, i.e. dilution, with the proceeds according to the filing, “80% directed towards enhancing its cloud infrastructure, which encompasses scaling up data centers, upgrading technology, and improving services to meet growing demand. The remaining 20% will be invested in expanding international commerce operations”. S&P rated Alibaba’s convertible A+.

The Financial Times had a very complimentary article on Alibaba’s May 2024 convertible bond issue that used the proceeds to buy back stock and capped the dilution. Another very strong day of net buying of Alibaba (again) from Mainland investors via Southbound Stock Connect. Alibaba’s Amap local service effort weighed on Meituan (-5.06%).

Hong Kong advancers beat decliners, though healthcare was crushed by rumors that the US would impose tariffs on Chinese drugs. The market didn’t seem to differentiate between the few Chinese pharmaceutical names manufactured in the US. The tariff would be fun, as I suspect the US government is indirectly the largest buyer of healthcare products via Medicare and Medicaid.

The Ministry of Finance announced that EVs’ tax-free purchases will expire at year’s end, though the sales tax will be 5% tax versus 10% on traditional cars. EVs costing more than RMB 300K will be taxed at 10% less than an RMB 15 discount. I suspect today’s announcement falls under the auspice of the anti-involution campaign, as auto makers’ inability to curtail production arguably led the government to curb the demand. It also explains Nio’s recent stock sale. Chinese auto makers have made and sold 20 million cars YTD through August. Mexico announced tariffs on Chinese auto imports yesterday.

The State Council announced city center revitalization plans for Beijing and nine other cities.

Following yesterday’s note on members of Congress from the US House of Representatives visiting China for the first time since 2019, Reuters reports that both Marc Rubio and Peter Hasbeth spoke separately to their Chinese counterparts yesterday. Where there is smoke…

You might have noticed that the percentage of Southbound Stock Connect has suddenly dropped in half. Historically, we calculate the percentage by dividing Hong Kong turnover by Southbound turnover. In a meeting with the Hong Kong Exchanges this week, they quoted the percentage by dividing Connect turnover by two because Connect turnover is calculated by adding buy and sell turnover and then dividing by Hong Kong turnover. One could argue that you are double-counting the volume. I’ve seen the percentage calculated both ways, though I’ll defer to the methodology of the Exchange.

Today is September 11th, which will never be another day for those from or who live in New York. For the families of those taken too early, our thoughts and prayers go out to you. Gone but never forgotten. RIP B.Q.