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Growth Outperforms in Hong Kong While Value Outperforms in China

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Key News

Asian equity markets were off overnight despite the Nasdaq’s impressive intraday reversal as Japan came back from holiday with a thud while India, Malaysia, and Thailand managed moderate gains. The global value rotation hit South Korea as the Kospi gained +0.02%, despite seeing 4 decliners for every 1 advancer, though the growth-oriented Kosdaq -1.07%. The Hang Seng had a choppy session, closing lower by -0.03% while the Hang Sent Tech was off -0.1% despite Tencent gaining +1.5%, Meituan gaining +0.68%, JD.com gaining +1.78%, and Kuaishou gaining +3.34%. Volumes were off -6.59% from yesterday, which is only 78% of the 1-year average.

Tencent bought back stock for the fifth day in a row while Mainland investors bought the stock via Southbound Stock Connect. Tencent is not buying huge amounts of stock. Rather, the company is dollar-cost averaging. It is interesting that Tencent started buying back stock following their JD.com divestment and Sea Ltd. stock sale announcements. Makes you wonder if Tesla could be next? Hmmm.

Alibaba HK was off -1.57% as analysts conduct their pre-quiet period calls in advance of financial results being disclosed, which will likely occur following Lunar New Year. It feels like the coming results will be decent, but not great. The key will be the company’s outlook for analysts while investors will also be examining China’s macroeconomic conditions and economic policy support, which is obviously beyond the company’s control. Alibaba’s CEO Daniel Zhang resigned from Weibo’s board though he was replaced by their Chief Marketing Officer. This might indicate Alibaba is not looking to offload its Weibo stake.

Trip.com HK had a rough night on increasing cases of coronavirus in China, which led to a strong day in Hong Kong healthcare, gaining +2.69%. Hong Kong had a bit of a value day as materials gained +2%, real estate gained +1.34%, communication gained +1.22% (due to Tencent’s move), and financials gained +0.46%.

The Mainland had a BIG value rotation from growth as Shanghai fell -0.73%, Shenzhen fell -1.06%, and the STAR Board fell -1.81% on volume that was flat from yesterday, which is just above the 1-year average. Financials were the only sector in the green, gaining +0.47%. Similar to early last year, we are witnessing managers rebalancing their portfolios from being overweight popular/crowded growth trades into having some value sector exposure.

The clean technology ecosystem, which is comprised of electric vehicles, solar, and wind companies, was hit again along with liquor and technology, including semiconductors. The opportunity for these sectors is not going away as last year’s rotation lasted a month or so before they snapped back. Foreign investors sold -$631 million worth of Mainland stocks today as they tend to be exposed to these same growth stocks. Chinese Treasury bonds rallied, the currency was flat versus the US dollar, and copper slipped.

Ren Zeping is a famous Chinese economist. There is a fair amount of buzz surrounding a piece he wrote on how to raise China’s birth rate. He wrote that monetary policy should be used to incentivize parents to have more children. He suggests that the PBOC should give money to parents who have more children. Using fiscal policy to influence demographics will be a big theme in 2022 as free/reduced housing, tax deduction, and other incentives will be used to convince China’s Gen Z+ generation to have more children.      

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.37 versus 6.37 Yesterday
  • CNY/EUR 7.22 versus 7.21 Yesterday
  • Yield on 10-Year Government Bond 2.80% versus 2.81% Yesterday
  • Yield on 10-Year China Development Bank Bond 3.08% versus 3.09% Yesterday
  • Copper Price -0.23% overnight