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PBOC Taps the Brakes on CNY Appreciation While Foreign Investors Buy Mainland Stocks in Size

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Key News

Asian equities were largely higher except for Japan while Hong Kong and China outperformed. Too much too soon!

I completely jinxed CNY’s rally by highlighting it yesterday. The PBOC tempered the rally by raising banks’ foreign exchange deposit ratio by 2% to 9%. CNY slipped to 6.37 from yesterday’s 6.35. Despite today’s pullback, CNY has gained 11% versus the US dollar in two years. That is an amazing return considering the Western media narrative that China’s economy is imploding.

Investors did not care about the morning release of CPI and PPI data as the PPI data shows moderation in inflation month-over-month as efforts to bring down commodity prices are starting to take effect. Investors are focused on economic policy support following the recent bank reserve requirement ratio cut with more policy support coming out of this week’s Central Economy Annual Conference.

A Chinese biotech company reported a very high efficacy rate for its Covid vaccine, leading to a strong day in healthcare. All Hong Kong sectors were in the green, led by healthcare, which gained +4.04%. Meanwhile, Hong Kong internet stocks were largely higher. Hong Kong volumes were better than yesterday, but still only 74% of the 1-year average. Tencent and Meituan both saw net buying via Southbound Stock Connect as the former extends its inflow streak to 6 straight days and the latter to 12 straight days. NetEase HK was off -0.42% despite significant chatter of its rising Hong Kong volume, which is currently 46% of the US share class. Once the Hong Kong share class hits 55%, the Hong Kong share class is apt to be designated as its primary listing. That could allow NetEase to be added to Southbound Stock Connect. We shall see!

Mainland China had a strong day as Shanghai gained +0.98%, Shenzhen gained +0.7%, and the STAR Board gained +1.35%, on volumes that were 122% of the 1-year average. Liquor stocks had a strong day as healthcare gained +2.32%, real estate gained +1.92%, and communication gained +1.85%. Meanwhile, energy, industrials, and materials were off somewhat. The big news overnight was a MASSIVE inflow into Mainland equities from foreign investors of $3.397B. This is a BIG inflow number.

There has been some chatter about Alibaba establishing a metaverse unit.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.37 versus 6.35 Yesterday
  • CNY/EUR 7.21 versus 7.15 Yesterday
  • Yield on 10-Year Government Bond 2.85% versus 2.86% Yesterday
  • Yield on 10-Year China Development Bank Bond 3.09% versus 3.09% Yesterday
  • Copper Price -0.01% overnight