State Fund Cuts Semiconductor Holdings Leading to a Tech Wreck
Asian equity markets were mixed in light trading which we should expect for the remainder of the week unless an unexpected tape/Twitter bomb hits. Mainland China was an outlier to the downside as the news that Xi will not attend the World Economic Forum in Davos disappointed investors, who were hoping for a Trump-Xi meeting. The bigger catalyst for Mainland China’s slump was news out right after the open that the China Integrated Circuit Industry Investment Fund was reducing its ownership of three Mainland publicly traded semiconductor stocks to under 1%. The Fund was established to supply R&D capital for China’s semiconductor companies following the White House’s effort to block Chinese purchases of US chips. The move led to a tech wreck, which spread to the broader market as investors locked in gains going into year end. The move may actually be a good sign for the US-China trade relationship.
It is worth noting that China did confirm that trade envoy Liu He will visit the US in early January in order to sign the Phase One deal. We also had confirmation that China would start waiving tariffs on US goods such as pork, semiconductors, and pharmaceuticals on January 1st. Chinese pharma stocks in Hong Kong had a good day after the FDA approved a Chinese breast cancer drug in a surprise move.
The Hang Seng opened +0.55% higher though slumped across the day with a closing rally to manage a +0.13%/+35 index points to close at 27,906. Volumes slumped -29.7% from Friday while 25 stocks advanced and 24 declined. AIA was off -0.88%/-23.1 index points, Tencent +0.69%/+20.8 index points and China Construction Bank +0.91%/+19.8 index points. Healthcare was the top performer +2.42%/+5.5 index points and CSPC Pharma +2.08%/+5.4 index points while China Unicom was the worst performer -1.1%/-1.4 index points. Chinese domiciled companies outperformed +0.2% while Hong Kong domiciled companies lagged +0.02% as defined by the Hang Seng Enterprises and Hang Seng HK 35 indices. The Hong Kong listed companies within the MSCI China All Shares Index +0.46% led by healthcare +1.44%, materials +1.36%, staples +1.14%, energy +0.85%, discretionary +0.76%, communication +0.62%, industrials +0.43%, real estate +0.41%, tech +0.15%, utilities +0.01% and financials +0.005%. Southbound Connect volumes were moderate in mixed trading. Volume leader CCB had 6 to 1 buyers, Meituan had 2 to 1 sellers, and Tencent had 2 to 1.5 buyers. Mainland investors bought $89 million worth of Hong Kong stocks, while Southbound Connect volume accounted for nearly 9% of Hong Kong turnover today.
The Shanghai & Shenzhen slumped -1.4% and -1.92% as volume was off only 6% though breadth was atrocious with only 454 advancers and 3,256 decliners. Mid and small caps were off ~2% versus large capsm which were off by ~1%. The Mainland stocks within the MSCI China All Shares Index were off -1.28% led lower by tech -2.61%, communication -2.49%, real estate -1.99%, financials -1.59%, energy -1.39%, industrials -1.09%, discretionary -0.91%, utilities -0.84%, staples -0.58%, healthcare -0.53%, materials -0.31%. Northbound Connect volumes were moderate as Shenzhen Connect’s volume and buying outpaced its larger sibling, the Shanghai. Foreign investors bought $249mm of Mainland stocks today while Northbound Connect volume accounted for just over 4% of the mainland’s turnover.
Alibaba HK (9988 HK) hit an all-time high +0.68%.
Rival JD.com (JD US) is rallying this morning on news it would spin off its logistics unit in a US or Hong Kong IPO.
The WSJ had an exceedingly complimentary article on trade hawk Peter Navarro. What I got out of it was pretty much just that Trump uses Navarro as his bad cop in negotiations. For a newspaper that is supposedly the bastion of free markets and capitalism, it is shocking to read such a glowing review of an individual who espouses a view that sometimes conflicts with those principles.
Last Night’s Prices & Yields
- CNY/USD 7.01 versus 7.01 Friday
- CNY/EUR 7.78 versus 7.77 Friday
- Yield on 1-Day Government Bond 1.78% versus 2.03% Friday
- Yield on 10-Year Government Bond 3.17% versus 3.18% Friday
- Yield on 10-Year China Development Bank Bond 3.58% versus 3.59% Friday
- Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper flat