Key News

Asian equities had a decent start to the week led by the Philippines’ strong day. South Korea was off on tech/growth weakness, and Japan was on holiday. The Hang Seng closed on its intra-day high of +1.08%, led by internet stocks as the Hang Seng Tech Index gained +2.21%.

Prior to the open in Hong Kong, Mainland media source Caixin noted that Tencent’s trimming of its stake in Southeast Asian gaming/e-commerce company Sea Ltd “had nothing to do with regulatory risk”.

Over the weekend, I read a great macroeconomic outlook piece from an Asia-based institutional broker. As an outsider looking at the US market’s valuation versus Asia’s, it is hard not to believe a rebalance could occur. The report looked at broad country benchmarks in addition to comparing the largest US stocks by market capitalization and price to earnings ratios versus their Asian equivalents. The market tends to do the unexpected. An Asia rally in 2022 would catch many investors under-allocated after the strong performance of US equities since the Global Financial Crisis.

All sectors in Hong Kong were up overnight as nearly 4 stocks advanced to every 1 declining stock. Volume declined -5.79% from Friday, which is only 84% of the 1-year average. Hong Kong’s most heavily traded stocks by value were Tencent, which gained +2.3%, Alibaba HK, which fell -0.93% after a nice rebound last week, and Meituan, which gained +1.27% though several names had very strong days including Kuaishou, which gained +10.11%, JD Health, which gained +11.64%, and Alibaba Health, which surged +10.83%. Tencent and Meituan were both net buys by Mainland investors via Southbound Connect.

The two best performing sectors in both Hong Kong and Mainland China were healthcare and real estate. Real estate was driven by Friday’s news from regulators that strong companies in the space can takeover weak players using bank loans, though we have yet to see a spike in M&A activity.

Healthcare had a strong day as China continues to battle covid outbreaks, leading to demand for testing and vaccines.

Mainland markets had nearly 3 advancing stocks to every 1 declining stock as Shanghai gained +0.39%, Shenzhen gained +0.59%, and the STAR Board gained +0.98%. Volumes were off -12.99% from Friday, which is 99.8% of the 1-year average.

Electric vehicles, solar, and wind were off as investors globally, including in China, trim growth for value. Foreign investors bought $746 million worth of Mainland stocks today via Northbound Stock Connect. Chinese Treasury bonds were mixed, China’s currency versus the dollar rallied, and copper gained overnight.  

One counterargument to an Asian equity rally is that if the Fed does raise rates it would lead to a US dollar rally. This would hurt stocks denominated in other currencies. Because the Hong Kong dollar is pegged to the US dollar, Hong Kong listed stocks might have an advantage over other Asian markets from a currency perspective. However, China’s high relative yields should help if we have a dollar rally if you believe the Fed will actually raise rates in 2022. For what’s it worth, I’m in the camp there will be more taper than rate hikes.    

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.37 versus 6.38 Friday
• CNY/EUR 7.20 versus 7.24 Friday
• Yield on 1-Day Government Bond 1.78% versus 1.76% Friday
• Yield on 10-Year Government Bond 2.81% versus 2.82% Friday
• Yield on 10-Year China Development Bank Bond 3.09% versus 3.10% Friday
• Copper Price +0.56% overnight