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Investors Ask “Where’s the Stimulus?”

Key News

Northern Asia equity markets were largely off aside from Taiwan’s small gain. South Asia and India performed well and the Philippines outperformed. The Hang Seng Index gained +0.11% as Hong Kong-listed value sectors/stocks had a strong day led by energy, which gained +2.31%, versus growth sectors/stocks. Volumes were light, falling -11.21% from yesterday, which is only 83% of the 1-year average, while 2 stocks declined for every 1 advancer. US-listed Chinese ADRs didn’t rally as much yesterday as their Hong Kong share classes, which led one to believe they were not going to have a great day that came to fruition.

The Hang Seng Tech Index lost -1.75% as Hong Kong’s most heavily traded were Tencent -1.16%, Alibaba HK -0.6%, and Meituan -0.35%. Not that bad though JD.com HK was off -3.93%. We would like to have seen a stronger follow-through on Tuesday’s gains.

Tencent was a small net sell while Meituan had a strong inflow day from Mainland investors via Southbound Stock Connect. Although it has garnered zero attention, on Wednesday the State Council released the 14th Five-Year Plan’s digital economy plan. I’ve not read the document (yet) but e-commerce was prominently displayed.

Hong Kong and China real estate stocks had a rough night, falling -4.29% and -1.61%, respectively, as distressed property developer Sunac lost -22.63% after selling 452 million shares at a -15% discount to yesterday’s close. The sale raises $580 million for the company which will go to pay off debt. Publicly traded real estate companies account for less than ~5% of Hong Kong’s market cap though the sector has a bigger effect on the economy. 

The Mainland had an off night as Shanghai -1.17%, Shenzhen -1.65%, and the STAR Board -1.65% on volume +3% from yesterday which is 103% of the 1-year average as nearly 3 stocks declined for every 1 advancer. Yes, markets were off but it was by no means panic. Coronavirus cases are popping up all over China which is dampening investor sentiment in the short run. Many local brokers are asking “where’s the stimulus?” as chatter about a bank reserve requirement ratio cut and/or interest rate cut percolates.

China’s export growth is apt to be slow as global stimulus slows, meaning domestic consumption needs to fill the slack. Consumers have been conservative due to worries around coronavirus. If consumption is going to receive the baton from export, policymakers are going to have push the gas pedal. The Mainland’s most heavily traded stock by value was Kweichow Moutai -4.56% after a widely respected foreign asset manager cut its stake. Foreign investors sold -$92mm of Mainland stocks via Northbound Stock Connect. Chinese Treasury bonds rallied a little, the currency appreciated versus the US $, and copper had a strong day up nearly 2%.

Will policymakers tolerate stocks falling during the 2022 Beijing Winter Olympics? I went and looked at how markets did during the 2008 Beijing Summer Olympics (August 8, 2008, to August 24, 2008).  Shanghai and Shenzhen were off -7% and -9%. With that said, it likely isn’t a good comparison as we were in a financial crisis. 

A Mainland media source noted that China and India held talks concerning their shared western border. I noticed on New Year’s Chinese and Indian border guards shared gifts.

The economist who wrote about using helicopter money/government handouts to raise China’s birthrate mentioned yesterday was kicked off Weibo, China’s Twitter, for two weeks. Apparently, his idea didn’t go over well!

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.36 versus 6.37 Yesterday
  • CNY/EUR 7.29 versus 7.23 Yesterday
  • Yield on 10-Year Government Bond 2.79% versus 2.80% Yesterday
  • Yield on 10-Year China Development Bank Bond 3.08% versus 3.08% Yesterday
  • Copper Price +1.96% overnight