Mr. Ahern Goes To Washington

Key News

Asian equities were mixed overnight, as Northeast Asia outperformed Southeast Asia. Pakistan plunged 6.7% as their skirmish with India continues, though India was off only 0.58%. I had no idea how well Pakistan’s stock market has done since it bottomed in mid-2023, which puts the pullback in perspective.

Both Hong Kong and Mainland China posted gains after yesterday’s interest rate cuts and economic policy support, as market indices are back at the pre-Liberation Day level, which appears to be acting as resistance. President Trump’s announcement of a major trade deal may have helped sentiment, though the release of the final details of his deal with the UK could curb enthusiasm. Trump’s cancellation of the Biden Administration’s chip curbs weighed heavily on local Chinese semiconductors, though electronic equipment, tech hardware, and communication equipment had a very good day.

After the close, semiconductor maker Semiconductor Manufacturing International (SMIC) released Q1 guidance of net profit up +160% year-over-year (YoY). Hong Kong-listed internet stocks and electric vehicle (EV) stocks had a strong day as Alibaba gained +0.16% on optimism surrounding the 618 (June 16^th) sales event, which will begin pre-sales next week. The China Passenger Car Association announced preliminary EV and hybrid sales were +37% YoY to 922,000, though off-7 % month over month. Online seller Autohome (ATHM US, 2518 HK) beat Q1 analyst expectations for revenue, adjusted net income, and adjusted EPS, though all declined YoY. Real estate underperformed after financial results from nine construction companies were released, showing a total revenue decrease of -4.23% YoY and a net profit decrease of -9.9% YoY.

Mainland investors sold a net -$306 million worth of Hong Kong-listed stocks and ETFs for a rare two consecutive days of net selling. Energy was weak in both markets, as oil prices declined. Mainland defense and military stocks outperformed again, as apparently, Pakistan buys equipment from China. There is no sign of the National Team, as their favored ETFs had below-average volumes.

While in Washington, DC, for client meetings and a conference, I was able to garner an important insight into the recent uptake in US-listed China ADRs. The Holding Foreign Companies Accountable (HFCAA) states that the SEC and PCAOB must state annually whether or not they continue to have the ability to conduct audit reviews of auditors who have more than one hundred listed companies in the US. Neither the SEC nor the PCAOB has updated the list of companies, despite the fact that many companies have been listed in the US since the original finding. In December 2022, the SEC website published that they were able to audit the companies’ auditors, under initial review due to the Chinese government changing the law that previously prevented them. However, they’ve not stated anything subsequently.

The SEC and PCAOB should publish annually, as the HFCAA requires. They might have waited because of the new Administration, which is rumored to be considering restructuring the agencies to roll them into one. Could raising ADR delisting complicate US-China trade negotiations? Maybe, though it didn’t appear to be a concern, as the White House and not Congress were doing trade negotiations. I suspect China will likely raise the ADR issue in the coming negotiations, as the Chinese government is unlikely to differentiate between the White House and Congress.

Unlike President Biden’s inability to control Pelosi’s visit to Taiwan, I believe President Trump can tell the Republican Congress to cool it if it jeopardizes his big, beautiful deal. With the tariff tsunami likely coming in early June, both sides could edge toward a deal, with fentanyl as a logical place to start. Congress’s infatuation with China was disconcerting, along with the lack of understanding of how economically intertwined the US and China are.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.23 versus 7.22 yesterday
• CNY per EUR 8.17 versus 8.21 yesterday
• Yield on 10-Year Government Bond 1.63% versus 1.64% yesterday
• Yield on 10-Year China Development Bank Bond 1.67% versus 1.67% yesterday
• Copper Price -0.58%
• Steel Price -1.09%