PBOC Leaves Investors Wanting
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Asian equities were largely higher as Hong Kong and China underperformed on light volumes. Hong Kong saw profit-taking following the recent rebound in internet and growth stocks while the Mainland market was disappointed by the PBOC’s injection of liquidity into the financial system, which was slightly below the amount of maturing loans to banks. I am surprised that the slight miss had such an effect on equities, though stock investors like myself are knuckle-dragging Neanderthals compared to our fixed-income counterparts. Confirming evidence is the location of the largest fixed income managers’ headquarters: Newport Beach, LA, Pasadena.
The market has been in a bit of a funk since the post-Chinese New Year correction, which likely explains why the small net drain had an outsized role in today’s performance. Ultimately, the PBOC isn’t tightening at this juncture but rather shifting from pushing the gas pedal down as the economy recovers to staying neutral. Financials were off on the PBOC move while semiconductors cheered Taiwan Semiconductor’s results. There was a fair amount of talk surrounding a release on increasing China’s birth rate while many fish companies were off after Japan announced the release of treated water from the Fukushima nuclear plant into the Pacific. Distressed debt manager Huarong delayed the release of its financial results, which lead to a downdraft in the company’s bonds.
John Kerry is currently in China for the next three days, likely working on the framework for a climate change agreement in advance of President Biden’s global leaders’ summit.
LVMH’s Q1 revenues by region year-over-year were released. US increased +23%, Japan gained +8%, Asia ex-Japan rose +86%, and Europe fell -9%.
China’s Q1 GDP will be released around 10:00 am EST. Economists estimate 18.5% year-over-year growth.
The Hang Seng was off -0.37% off of the intra-day low of -1.28% as volume fell -9.85% from yesterday to just 79% of the 1-year average. The Chinese companies within the MSCI China All Shares Index were off -0.37% with materials up +1.25%, utilities +0.49%, and tech +0.44% while financials fell -1.00%, healthcare -0.71%, and communication -0.62%. Hong Kong’s most heavily traded by value were Tencent, which fell -0.56%, Alibaba Hong Kong, which was off -1.68%, Kuaishou Tech, which fell -7.76%, Meituan, which fell -0.42%, Ping An, which was off -0.98%, Xiaomi, which rose +0.59%, Anta Sports, which gained +1.00%, AIA, which rose +0.96%, China Construction Bank, which was off -1.22%, and China Mobile, which fell -0.6%. Southbound Connect volumes were very light as Mainland investors sold $71mm of Hong Kong stocks as Tencent saw a rare sell day.
Shanghai, Shenzhen, and STAR Board were mixed at -0.52%, -0.54%, and +0.75% respectively as volume gained +0.9% from yesterday, which is only 75% of the 1-year average. The Mainland stocks within the MSCI China All Shares Index were off -0.6% as materials and energy gained 0.62% and +0.59% while utilities fell -1.82%, staples -1.1%, discretionary -1.04%, and financials -0.98%. Breadth saw 1,602 advancers and 2,232 decliners. Gree gained +1.02% after yesterday’s earnings announcement. This morning, they reported an ESOP plan from employees. Mainland’s most heavily traded by volume were BOE Tech +0.14%, liquor stock Wuliangye Yibin -3.03%, Longi Green Energy +5.66%, Kweichow Moutai -1.53%, and ICBC -3.87%. Northbound Connect volumes were moderate as foreign investors sold -$145mm of Mainland stocks today with battery maker CATL and BYD sold while ICBC was bought on weakness. CNY appreciated very slightly versus the US $, bonds were off a touch, and copper rallied.
Last Night’s Exchange Rates, Prices, & Yields
- CNY/USD 6.53 versus 6.53 yesterday
- CNY/EUR 7.81 versus 7.81 yesterday
- Yield on 1-Day Government Bond 1.58% versus 1.58% yesterday
- Yield on 10-Year Government Bond 3.17% versus 3.17% yesterday
- Yield on 10-Year China Development Bank Bond 3.57% versus 3.57% yesterday
- China’s Copper Price +1.67% overnight