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Asian equities were mixed overnight as Japan and South Korea outperformed.
Have you ever noticed that Japan’s yield curve control is never called currency manipulation by either the Western media or the US government? Me neither. That is just an observation.
Both Hong Kong and Mainland China were flat overnight despite US-listed China stocks’ dramatic fall yesterday. Yes, the official PMIs missed expectations and declined month-over-month, but I was shocked at yesterday’s decline. The lack of buyers is the real culprit as global events have kept investors sidelined along with the US dollar rising and the resulting attractiveness of safe assets.
Many of the China headwinds have clearly abated with the economy bottoming out and receiving policy attention. Meanwhile, the US-China diplomatic relationship has clearly improved. A Biden-Xi meeting at the Asia Pacific Economic Cooperation (APEC) Conference was confirmed by the White House this morning. The Biden-Xi meeting might provide the US’ Public Company Accounting Oversight Board (PCAOB) the political cover to reveal the results of its second auditor visit. Having visited Hong Kong months ago, the second auditor review results should be disseminated. If the auditors pass, then the SEC should remove the ADRs from their delisting list (For more information, please visit sec.gov/hfcaa).
There was a wholly unenthusiastic reaction to the conclusion of the Central Financial Work Conference (CFWC). However, the government’s attention to financial markets and the economy should yield results.
The big news overnight was liquor maker Kweichow Moutai hiking prices on some of its products by +20%. The price increases led to the stock gaining +5.72% overnight. The stock, which has a market capitalization that is more than 3X larger than Diageo, traded 9.3 million shares versus yesterday’s 1.9 million shares, which is 2X yesterday’s most heavily traded Mainland stock by value. Foreign investors have been net sellers of the stock year-to-date via Northbound Stock Connect. Oops.
Yum China’s Hong Kong shares fell -12.98% after the fast food chain missed analysts’ Q3 estimates on revenue, net income, and earnings per share (EPS), though most investors utilize the US listing as the Hong Kong shares have very light volumes compared to the American depositary receipts (ADRs).
Hot pot chain Haidilao (6862 HK) fell -12.78%, leaving investors scratching their heads after announcing they are buying a Japanese hotel chain.
Hong Kong-listed internet stocks were off but not nearly as much as their US-listed counterparts were yesterday, as Alibaba HK fell -0.54% versus the US ADR’s -0.72% fall yesterday, JD.com HK -1.05% versus -2%, Tencent -0.76% versus -1.44%, Baudi -1.07% versus -1.1%, and NetEase HK -0.42% versus -0.86%. Explains why we prefer the Hong Kong shares over the US ADRs. Mainland investors bought the Hong Kong dip via Southbound Stock Connect buying +$285 million of Hong Kong stocks and ETFs. Evergrande in the news as they haggle with creditors over their restructuring though this saga is far from over.
The Hang Seng and Hang Seng Tech indexes fell -0.06% and -0.18%, respectively, on volume that declined -19.71% from yesterday, which is 60% of the 1-year average. 211 stocks advanced while 271 declined. Main Board short turnover decreased -24% from yesterday which is 61% of the 1-year average as 17% of turnover was short turnover (remember Hong Kong short turnover includes ETF short volume which is driven by market makers’ ETF hedging). The value factor and small caps outperformed the growth factor and large caps. The top sectors were energy +0.42%, financials +0.36%, and tech +0.29%, while materials -0.88%, discretionary -0.77%, and communication -0.61% were the worst. The top sub-sectors were household products, semis, and energy, while consumer services, business/professional services, and auto were the worst. Southbound Stock Connect volumes were light as Mainland investors bought $285 million of Hong Kong stocks and ETFs. (Apologies as the software for analyzing individual stock buys/sells isn’t working.)
Shanghai, Shenzhen, and the STAR Board were mixed to close +0.14%, -0.13%, and -0.51%, respectively, on volume -11.75% from yesterday which is 92% of the 1-year average. 2,745 stocks advanced while 2,028 declined. The value factor and large caps outpaced the growth factor and small caps. The top sectors were staples +2.69%, communication +0.26%, and utilities +0.14%, while tech -1.17%, materials -0.86%, and real estate -0.47% were the worst. The top sub-sectors were liquor, office supplies, and motorcycles, while construction machinery, precious metals, and soft drinks were the worst. Northbound Stock Connect volumes were light as foreign investors sold -$284 million of Mainland stocks. CNY and the Asia dollar index eased slightly versus the US dollar. Treasury bonds rallied while copper fell and steel rallied.
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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 7.72 versus 7.79 yesterday
- Yield on 10-Year Government Bond 2.68% versus 2.69% yesterday
- Yield on 10-Year China Development Bank Bond 2.74% versus 2.74% yesterday
- Copper Price -0.25% overnight
- Steel Price +0.35% overnight
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