Daily Posts

Reopening, Rising Yields, and Commodities Lift Cyclical Stocks

Key News

Asian equities had a largely positive day in a quiet session of trading. Japan was closed; China and Korea were off a touch. Following the US equity market’s growth decline, cyclical names played catch up as investors rotate a touch into unloved sectors at the expense of year-to-date and 2020 winners. The catalyst or culprit is the rise in 10-year US Treasury yields along with strong commodity prices. We may see a value rally as the global vaccine rollout occurs, leading to the reopening of many industries previously harmed by quarantines. Hong Kong provided an example today as Macau casinos outperformed once travel restrictions were eased.

The Hang Seng bounced around the room closing up +1.03%, led by Old Economy sectors (financials, energy, industrials, and real estate) along with health care as Sino Biopharma’s vaccine rollout led a +12.03% rally. Hong Kong volume leaders were Tencent, which fell -0.91%, Meituan, which dropped -1.85%, China Mobile, which rose +0.45%, Alibaba Hong Kong, which was down -1.2%, Xiaomi, which fell -3.1%, BYD, which dropped -5.76%, HSBC, which gained +0.43% post-earnings, Kuaishou Tech, which was off -5.24%, Macau casino Galaxy, which rose +8.88%, and Ping An Insurance, which was up +2.07%.

Southbound Connect volumes were heavy as Mainland investors bought $1.001 billion worth of Hong Kong stocks today as Tencent and Meituan were significant beneficiaries. Mainland China also experienced a value/cyclical rally at the expense of growth stocks as Shanghai and Shenzhen fell -0.17% and -0.85%, respectively, though the STAR Board managed to gain +0.04%. Kweichow Moutai was the Mainland volume leader, gaining +0.83%, though BYD was off by -6.06%. Foreign investors were active on Northbound Stock Connect, buying $100 million worth of Mainland stocks while CNY appreciated a touch versus the US dollar and bonds rallied along with copper (again). 

Yesterday, we discussed FTSE’s decision to transition to Alibaba’s Hong Kong share class from the US share class.  One negative is Hong Kong’s stamp tax. A broker mentioned overnight that local politicians are proposing to double the stamp tax. There is likely to be significant pushback on such a proposal as many believe the stamp tax should be eliminated altogether.

Bilibili reports tomorrow, followed by NetEase and Vipshop Thursday, and then Sina and Weibo Friday. Friday is the trading day for MSCI’s quarterly index review as well.

Chinese EV maker Xpeng’s lock-up of stocks from their IPO ends today.

Baidu was able to buck the recent weakness due to the announcement of their partnership with Geely to develop electric vehicles in an effort led by Mobike’s co-founder. If you have been to China the last few years, you may recognize Mobike as a bike rental company. Several companies competed in the space, likely fueled by private equity money, leading to different companies’ orange, yellow, and blue bikes all over Chinese cities. I recall seeing bikes on sidewalks, in trees, canals, etc. Meituan ended up buying Mobike. The mention of Mobike brought up several memories, and I am sure that the EV lead is highly capable.

H-Share Update

The Hang Seng bounced around the room to close up +1.03% at 30,632. Volume was off -11% from yesterday though still 182% of the 1-year average while breadth saw 33 advancer and 18 decliners. The 196 Chinese companies listed in Hong Kong within the MSCI China All Shares Index were off -0.24%, with financials +2.33%, energy +1.73%, industrials +1.09%, real estate +1.06%, and health care +0.99%, while materials fell -3.38%, discretionary -2.11%, tech -1.57%, and communication -0.88%. Southbound Connect volumes were elevated as Mainland investors bought $1.001B of Hong Kong stocks today as Southbound Connect trading accounted for 14.8% of Hong Kong turnover.

A-Share Update

Shanghai & Shenzhen had a choppy session with late afternoon selling, pulling the market down -0.17% and -0.85% at 3,636 and 2,396 respectively. Volumes were off -21% from yesterday, which is 117% of the 1-year average while breadth had 1,168 advancers and 2,693 decliners. The 511 Mainland stocks within the MSCI China All Shares Index were off -0.25% with financials +0.71%, industrials +0.51%, and utilities +0.19%, while materials -2.14%, discretionary -1.77%, energy -1.65%, communication -1.34% and real estate -0.55%. Northbound Stock Connect volumes were elevated as foreign investors bought $100mm of Mainland stocks as Northbound Stock Connect trading accounted for 5.6% of Hong Kong turnover.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.46 versus 6.47 yesterday
  • CNY/EUR 7.86 versus 7.85 yesterday
  • Yield on 10-Year Government Bond 3.26% versus 3.27% Tuesday
  • Yield on 10-Year China Development Bank Bond 3.74% versus 3.75% Tuesday
  • China’s Copper Price +2.22% overnight