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Asian equities were largely higher except for South Korea, India, and Singapore.
Mainland China and Hong Kong both opened higher following yesterday’s strong performance in US-listed China stocks, following China’s surprise post-market announcement that the budget deficit would be expanded due to the issuance of RMB 1 trillion worth of bonds for local governments to use on infrastructure damaged during several natural disasters.
We also saw sovereign wealth fund Central Huijin announcing they bought Mainland equity ETFs, President Xi visiting the PBOC for the first time, China’s foreign minister traveling to Washington, and California Governor Gavin Newsom visiting China.
I enjoyed the videos of Newsom driving around in a BYD electric SUV. It turns out that he met with President Xi today to discuss climate change issues, though I wonder whether Newsom is helping with the logistics for a Biden-Xi summit. Jokingly, I would choose Newsom’s Cade winery, which is in a discreet location, versus his Plumpjack winery location.
Neither market could maintain the opening highs nor match the strong performance of US-listed China stocks yesterday, which made strong gains. Chinese copper and steel futures had a strong day, along with infrastructure and consumer plays, which rose on the stimulus news. All sectors were positive in Hong Kong, while the Mainland had the strongest volume day in two months. Hong Kong internet names had a good day, but not as great a day as their US-listed counterparts had yesterday, which will lead to a pullback today. The key will be investors coming back to the space, which will take time.
The current macroeconomic environment, which includes the US Treasury 10-year yield rising, Middle East tensions, and Washington DC dysfunction, makes it difficult to allocate to risk assets. Neither Rome nor bull markets were built in a day as investors will look for further policy support, Biden-Xi summit confirmation, Singles Day results, and property prices stabilizing. Overnight, Hong Kong cut its stamp tax from 13bps to 10bps to pre-COVID levels and Hong Kong real estate tax, though the moves were non-events/underwhelming as the Hong Kong Exchanges fell -4.07%. Foreign investors sold Mainland stocks though only -$177 million as several reallocated to infrastructure plays. Distressed real estate developer Country Garden is in technical default, though it will go to court, where a restructuring process will start to take place, which will take time. We are hosting an event next week to discuss the situation and outcome with experts in Asia. Register here if you are interested!
The Hang Seng and Hang Seng Tech indexes gained +0.55% and +2.16%, respectively, on volume that increased +6.13% from yesterday, which is 84% of the 1-year average. 277 stocks advanced, while 201 declined. Main Board short turnover increased by +9.02% from yesterday, which is 87% of the 1-year average, as 17% of turnover was short turnover. The growth factor outperformed the value factor as small caps outpaced large caps. All sectors were positive, with industrials 2.46%, materials +2.39%, and discretionary +2.27%. The top sub-sectors were retailers, auto, and technical hardware, while telecom services, energy, and diversified finance were the worst. Southbound Stock Connect volumes were moderate as Mainland investors sold -$6 million of Hong Kong ETFs and stocks, with Meituan a small/moderate net buy, Li Auto and Tencent small net buys while China Mobile, energy giant CNOOC, and Kuaishou were moderate/large net sells.
Shanghai, Shenzhen, and the STAR Board diverged to close +0.4%, +0.9%, and -0.23%, respection volume +8.87% from yesterday, which is 100% of the 1-year average. 3,844 stocks advanced, while 1,051 declined. The value factor outperformed the growth factor, while large caps outpaced small caps. The top sub-sectors were retailers, auto, and technical hardware, while telecom services, energy, and diversified finance were the worst. The top sub-sectors were steel, education, and construction machinery, while chemical, telecom, and oil/gas were the worst. Northbound Stock Connect volumes were moderate as foreign investors sold -$177 million of Mainland stocks with Baosteel, iFlytek, and Sokon moderate/small net buys, while Midea, Focus Media, and Changan Auto were moderate net sells. CNY and the Asia dollar index were both off versus the US dollar. Treasury bonds were bought while steel and copper rose.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.31 versus 7.31 yesterday
- CNY per EUR 7.73 versus 7.77 yesterday
- Yield on 10-Year Government Bond 2.70% versus 2.71% yesterday
- Yield on 10-Year China Development Bank Bond 2.76% versus 2.76% yesterday
- Copper Price +0.95% overnight
- Steel Price +1.89% overnight
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