Key News

Asian equities were a sea of red overnight on fears of rising interest rates. Only Mainland China and India posted positive results. Hong Kong-listed stocks are still foreign investors' primary definition of China, which was reflected in today’s pessimism while investors in Mainland China did not seem to care.

Mainland Chinese equities are one of the lowest correlated markets as they tend to beat to their own drum providing a rare last free lunch (i.e. diversification). The Mainland had a distinct growth feel to performance with the STAR Board gaining +2.24% versus Shanghai’s +0.1% gain.

The PBOC publicly denied rumors it will tighten monetary conditions and proved as much by keeping the 1 and 5-year loan prime rates unchanged at the start of trading.

Brokers universally noted a Bloomberg article on the China Association of Automobile Manufacturers (CAAM) raising its vehicle sales target to 6.5% year-over-year (YoY) with electric vehicles (EV) sales potentially hitting 2 million, which is +46% YoY. Autos and EV names had a strong day.

Value sectors were off today as energy and materials were hit again on China’s attempt to bring down commodity prices as copper was off -1.55%. Financials and real estate were down as well.

It was an interesting day for Northbound and Southbound Connect as Mainland investors sold -$190 million worth of Hong Kong-listed stocks (not a big number) as Tencent and Wuxi Biologics were big net buys while foreign investors trimmed their stock positions, selling -$310 million (YTD +$30B of inflow).

CNY was off today versus the US dollar at 6.47, having depreciated from 6.37 on May 31^st.

JD.com’s June 1^st to June 18^th sales event wrapped up with RMB 343.8B ($53B) worth of goods sold. JD.com’s Hong Kong listing was off today despite the strong results.

China’s May import volume showed an impressive pick up with soybeans +28% and corn +70% from April.

Chinese government bonds rallied with the 10 Year Treasury yield at 3.1%.

H-Share Update

The Hang Seng Index and Hang Seng TECH Index opened lower and stayed there closing -1.08% and -1.06%, respectively. Turnover was just below the 1-year average and off -23% from Friday, which was the FTSE Russell rebalance day. The 210 Chinese companies listed in Hong Kong and within the MSCI China All Shares Index lost -0.85% with healthcare the only positive sector +1.09% while staples -2.71%, communication -1.98%, materials -1.51%, financials -1.16%, industrials -1.12% and tech -0.95%. Hong Kong’s most heavily traded stocks by value were Tencent, which fell -2.07%, Geely Auto, which gained +4.38%, Wuxi Biologics, which gained +4.01%, Meituan, which gained +0.4%, Xiaomi, which fell -2.95%, Ping An Insurance, which fell -1.81%, BYD, which gained +0.09%, Alibaba HK, which fell -0.77%, China Mobile, which gained +2.75%, and HSBC, which fell -3.5%. Southbound Stock Connect volumes were elevated as Mainland investors sold -$190 million worth of Hong Kong stocks as Southbound trading accounted for 16.7% of Hong Kong turnover.

A-Share Update

Shanghai, Shenzhen, and the STAR Board gained +0.12%, +0.74%, and +2.24%, respectively, as volume increased +0.5% from Friday, which is 109% of the 1-year average. The 531 Mainland stocks within the MSCI China All Shares Index eased -0.32% with tech +1.12%, communication +0.74%, and healthcare +0.36%. Meanwhile, financials -1.24%, real estate -1.19%, energy -1.05%, and staples -0.91%. The Mainland’s most heavily traded stocks by value were BYD, which fell -0.99%, Kweichow Moutai, which fell -0.44%, Longi Green Energy, which gained +2.37%, broker East Money, which gained +1.26%, COSCO Shipping, which fell -1.52%, Wuliangye Yibin, which gained +2.02%, Tianqi Lithium, which gained +6.71%, Gree Electric Appliances, which fell -4.79%, Luxshare Precision, which gained +5.89%, and CATL, which gained +0.62%. Northbound Stock Connect volumes were moderate as foreign investors sold $310 million worth of Mainland stocks as Northbound trading accounted for 5.9% of Mainland turnover.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.47 versus 6.45 Friday
• CNY/EUR 3.50% versus 3.52% Friday
• Yield on 1-Day Government Bond 1.55% versus 1.51% Friday
• Yield on 10-Year Government Bond 3.10% versus 3.12% Friday
• Yield on 10-Year China Development Bank Bond 3.50% versus 3.52% Friday
• Copper Price -1.55% overnight