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Hong Kong Investors Panic Selling Leads to More Mainland Buying

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Key News

Asian equities suffered another drawdown led by Hong Kong and China while Japan and the Philippines managed gains overnight. The market action is despite a long meeting between National Security Advisor Jake Sullivan and China’s Yang Jiechi in Rome yesterday. Finding a solution to the Ukraine crisis was no doubt a top agenda topic as it is in China’s economic interest to do so. The Ukraine is a major wheat exporter which will lead to higher food inflation/CPI while Russia is a major natural resource exporter/PPI for China and the global economy.

China denied the claim that Russia requested military equipment in a separate call yesterday despite the highly improbable accusation along with the false China-Russia friends narrative. Even Russia denied it asked China for military equipment. The US is trying to pressure China into finding a Ukraine solution though China doesn’t control Putin. The US is dangling/leaking, applying Russia-like sanctions on China leading to investors’ indiscriminate/price insensitive selling. Why the US won’t/highly unlikely to go down this path is it would lead to a US stock market crash and global depression leading the politicians who implement such a strategy to be fired/voted out. 

The Hang Seng fell -5.72% on volume +28.34% from yesterday on the 2nd highest volume day in a year. High volumes can be a sign of capitulation (fingers crossed) as breadth had only 12 advancers and 501 decliners. Hong Kong’s big structured product market continues to exacerbate weakness as knock out levels are met, leading to more indiscriminate selling.

Mainland investors were significant buyers of Tencent and to a lesser degree Meituan via Southbound Stock Connect.

There are other factors at play as Shenzhen, parts of Shanghai and Hong Kong suffer from covid lockdowns. This was a primary factor in the weakness in the Mainland as the Shanghai -4.95%, Shenzhen -4.56% and STAR Board -2.92% on volume +15.96% as only 293 stocks advanced and 4,126 stock declined. The market action is despite positive February data release.

The PBOC kept the medium-term lending facility rate stable at 2.85% which some had expected to be cut. Foreign investors sold -$2.512B today via Northbound Stock Connect. CNY was off versus the US $ while Chinese Treasury bonds were sold and copper was off a touch.

Boeing’s first 737MAX is enroute to China via a refueling pit stop in Hawaii. If the next 139 ordered planes are delivered, it would put a dent in China’s trade surplus.  

Hedge fund liquidation rumors may swirl but such a simple explanation for market weakness is naïve. I have no doubt leveraged investors are getting carried out.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.38 versus 6.37 yesterday
  • CNY/EUR 7.00 versus 6.97 yesterday
  • Yield on 10-Year Government Bond 2.82% versus 2.77% yesterday
  • Yield on 10-Year China Development Bank Bond 3.07% versus 3.01% yesterday
  • Copper Price -0.74% overnight