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Key News

It might be Valentine’s Day, but we got no love overnight as Asian equities were risk-off on Ukraine/Russia fears though Australia and the Philippines were outliers as their stock markets managed gains. Geopolitics was no cupid, but rather the culprit for today’s market action though there were a few issues worth discussing.

Real estate stocks were the worst performers in both Hong Kong, where they fell -4.98%, and Mainland China, where they fell -3.51% after real estate developer Vanke’s CEO gave a pessimistic outlook for the sector in 2022.  Vanke is a well-run firm that is respected by investors, as evidenced by their bonds trading near par value.

After last week’s poor performance, EV battery maker CATL (300750 CH) gained +3.68% and said it would report market rumors to the police. The issue for CATL has nothing to do with rumors, but rather the global value/growth rotation in advance of Fed hikes. Popular stocks/themes with high valuations are taking the brunt of the pain globally and China is no exception. Exhibit A overnight was mainland listed broker East Money (300059 CH), which collapsed -13.36% and was the most heavily traded stock by value. Great company? 100%. The fact that the stock is trading at a P/E of 39 and P/B of 7.5 is the issue.

Healthcare was off in Hong Kong, falling -0.94%, but did manage a gain on the Mainland, where the sector was up +0.57% on news that Pfizer’s oral coronavirus drug has been approved for use.

Although it was likely not a factor in last night’s market action, it is worth noting that India banned dozens of Chinese apps, which is more about protecting homegrown companies than politics.

The Hang Seng was off -1.41% on volume that was down -18.27% from Friday, which is only 73% of the 1-year average with almost 4 decliners for every 1 advancing stock. The Hang Seng has been fighting to punch through the psychologically important though numerically meaningless level of 25k. Hong Kong-listed internet stocks were off following Friday’s weak US performance as both Tencent and Meituan were sold by Mainland investors via Southbound Stock Connect.

Shanghai, Shenzhen, and the STAR Board were off -0.98%, -0.43%, and 0.01%, respectively, on volume that was down -12.69% from Friday, which is 82% of the 1-year average.  Decliners barely outpaced advancers overnight. Meanwhile, foreign investors sold -$596 million worth of Mainland stocks overnight via Northbound Stock Connect. Chinese Treasury bonds sold off while the currency was flat versus the US dollar and copper was torched, falling nearly -2%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.35 versus 6.36 yesterday
• CNY/EUR 7.19 versus 7.24 yesterday
• Yield on 1-Day Government Bond 1.45% versus 1.48% yesterday
• Yield on 10-Year Government Bond 2.80% versus 2.79% yesterday
• Yield on 10-Year China Development Bank Bond 3.03% versus 3.03% yesterday
• Copper Price -1.74% overnight