Chinese solar stocks rally to rooftop policy

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Asian stocks were mostly higher today on light volumes, with India outperforming while South Korea and Southeast Asia were down. According to Reuters, the Biden administration banned several Chinese manufacturers of monocrystalline silicon and polysilicon, which are used in the manufacture of solar panels, because of “allegations of forced labor in Xinjiang.” No mention was made of the inability of investors to own the companies. Of the listed entities, the only one with a China-listed stock that I found, Hoshine Silicon Industry (603,260 CH), fell -7.15%. DAQO is the US listed ADR of a company name, which I guess won’t do well today.

Guess which is the best performing sub-sector in China today? Solar! Coincidentally, it was announced that China would embark on installing solar panels on rooftops. Although details are limited, the continent’s actions in solar space have been torn apart on the news. Similar to tariffs, an import ban will simply increase the price of solar power in the United States (i.e. inflation).

Hong Kong listed Chinese internet / growth stocks had a good day while the mainland had a value day as Shanghai gained while Shenzhen and STAR Board saw profit taking. The PBOC has injected a small amount of liquidity into the financial system by issuing more new short-term / 7-day repo agreements than those expiring today.

Southbound Stock Connect, the trading platform that allows mainland investors to buy Hong Kong-listed stocks, reported a large purchase of Meituan today while Tencent was sold. Tencent is still Southbound Connect’s largest stake, although Southbound Connect’s ownership percentage fell from 6.95% to 6.77% of Tencent’s market cap over the past month. Meituan, No.4 behind CCB and ICBC yield banks / games, has 6.66% of its market cap held by mainland investors, which is below its high of 7.68%.

Hong Kong health stocks rose while mainland health stocks fell following the latest wholesale drug purchase. JD.com ran its Investor Analyst Day with strong initial comments as several analysts reiterate their buy / outperform ratings, although I haven’t seen any analysts raise their price targets.

After the US market closes today, MSCI will announce its annual country classification. I do not believe that the inclusion of China A nor an upgrade of South Korea to developing emerging markets will be announced today, but a consultation to consider such measures is feasible. Note that copper rallied today.

H-Share update

The Hang Seng Index and the Hang Seng TECH Index rebounded in the room, gaining + 0.23% and + 0.24% respectively as the volume fell -14% from yesterday to 81% of the average over a year. The 209 Chinese companies listed in Hong Kong in the MSCI China All Shares index gained + 0.39%, led by energy + 1.3%, discretionary goods + 0.97%, real estate + 0.86%, healthcare + 0.52% and materials + 0.25%, while utilities fell by -0.75%. The most traded stocks in Hong Kong by value were Meituan, which increased + 2.27%, Tencent, which increased + 0.09%, Alibaba HK, which increased + 1.45%, Geely Auto, which fell -1.14%, AIA, which rose + 0.62%. Anta Sports which is down -1.37%, Sunny Optical which is up 0.42%, Xiaomi which is stable, Genfeng Lithium which is down -2.52% and Chinasoft International which is down -0.29%. Southbound Stock Connect volumes were moderate / high, with mainland investors buying $ 173 million in mainland shares, with Southbound Connect trading accounting for 14.6% of HK revenue.

A-Share Update

Shanghai, Shenzhen and STAR Board had a choppy session of + 0.01%, -0.5% and -1.92% respectively, with volume declining -8.22% from yesterday, representing 105 % of 1-year average. The mainland 531 stocks of the MSCI China All Shares index rose + 0.2%, led by commodities + 1.02%, utilities + 0.9%, financials +0 , 69%, energy + 0.45% and materials + 0.41%, while communication fell -1.38%, health -1.31% and discretionary -0.21%. The most traded in value on the continent were recently listed Three Gorges Renewables, which fell -8.39%, Longi Green Energy, which rose + 5.48%, BYD, which rose + 0.65 %, Tongwei Co, which rose + 9.89%, COSCO Shipping, down -1.15%, Luxhsare Precision up + 4.06%, Kweichow Moutai up + 1.47%, Tianqi Lithium up + 0.62%, Chongqing Changan Auto down -1.17% and Jiangsu Hengrui Medicine down -4.43%. Northbound Stock Connect volumes were subdued as foreign investors purchased $ 478 million in mainland shares, with Northbound Connect trading accounting for 5.2% of the continent’s revenue. The CNY appreciated against the US dollar to 6.47, bonds rebounded slightly and copper + 1.14%.

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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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