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Hong Kong Cheers NetEase & Kuaishou Results

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Asian equities were largely higher as China outperformed while Japan, India, and Indonesia were off slightly.
Asian equities were largely higher as China outperformed while Japan, India, and Indonesia were off slightly. US-listed China internet stocks fell yesterday despite strong results from Kuaishou and NetEase. Given the exact same information, US investors sold NetEase’s ADR, which fell by -1.68% yesterday. However, NetEase’s Hong Kong shares gained +3.05% overnight. Kuaishou (1024 HK) gained +2.6% after the company released positive financial results. Yes, we had a sharp US equity decline yesterday. Yes, we had a Wall Street Journal article quoting the PCAOB on efforts to resolve the long running audit issue. We also had the SEC’s YJ Fischer, the Director of the Office of International Affairs, give a speech yesterday afternoon reiterating the efforts they are making to solve the issue. Overnight, Hong Kong internet stocks saw mixed performance. However, they were not down as much as their US-listed peers were yesterday. Tencent fell -1.18%, Meituan gained +0.06%, Alibaba HK fell -1.5% (versus Alibaba’s US-listed shares, which fell -5.46%), Kuaishou, which gained +5.37%, and JD.com, which fell -0.49% (versus JD’s US-listed shares, which fell -7.03%). These are all good reasons for an investor to prefer the Hong Kong shares over the US shares. The key to yesterday’s weakness was the lack of buyers in these stocks as professional mutual fund managers will likely continue to underweight the space until a solution to avoid delisting is at hand. In the meantime, shorts can keep pressing their bets knowing no one is stepping in to defend to buy the stocks. It is worth noting that NetEase’s value traded in Hong Kong is now 59% of the value traded in its US listing.

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