Key News

Asian equity markets followed the US market’s southward trajectory overnight, following the Fed confirming rising rates and balance sheet contraction. If one were looking for a positive on the market action, it would be volumes were light indicating selling lacked neither conviction nor panic. 

JD.com announced founder Richard Liu would step down as CEO and become Chairman. The move sent JD.com HK -3.24%, underperforming the space overnight as media reports made the tenuous connection to China’s internet regulation and Liu’s stepping down. Maybe it is… maybe not!  

Shanghai is still in the news for its lockdown though Mainland media noted there were only 322 new Shanghai covid cases today. The lockdown highlights the necessity for a high efficacy rate vaccine which, as we noted on Monday, two mRNA vaccines were approved. Let’s hope they can crank those vaccines out and put this policy to rest. Worth noting that both the Hong Kong internet and healthcare were off though one could argue they are beneficiaries, with the former being a work from home solution and the latter an obvious beneficiary for unfortunate reasons. The market has ignored a flurry of forward-looking economic policy statements from Premier Li, the PBOC, and State Council addressing a host of issues ranging from real estate sector support, supportive monetary policies, and helping private businesses. This is being done for a reason, i.e., necessity, as the Caixin Services PMI highlighted earlier this week.    

The Hang Seng Index was briefly in the green though weakened mid-morning. Volume was off -2.58% from yesterday, only 79% of the 1-year average, while only 49 stocks advanced and 443 declined. The index slumped after hitting the 22,000 level, closing -1.23% at 21,808. Hong Kong has a large warrants market that is similar to structured products. When stocks and indexes hit big round numbers down on principal-protected notes, banks have to auto-redeem the notes putting pressure on the underlying securities. Exhibit A would be the Hang Seng hitting 22k and dropping a quick 200 points. Every sector was off today though value sectors outperformed growth as financials -0.91%, materials -1.11% and energy -1.67% “outperformed” healthcare -4.09% and tech -2.6%. Liquor stocks were the best performing sub-sector, likely driven by traders’ demand following today’s price action. Mainland investors were net sellers of Hong Kong stocks, but Meituan was a net buy as Tencent was trimmed. It was likely driven by Meituan’s role in supplying Shanghai with food.

Shanghai, Shenzhen, and STAR Board weakened across the trading day, closing -1.42%, -1.9%, and -2.12% on volume -4.39% from yesterday, 86% of the 1-year average. There were only 559 advancing stocks versus 3,853 declining stocks as energy was the only buoyant sector +0.69%. Mega/large caps outperformed as the size factor outperformed. Liquor stocks held up alright, while wind and solar names held up better. Foreign investors sold -$95mm of Mainland stocks today. Treasury bonds had a strong day while CNY was off a touch versus the US $ and copper -0.2%.  

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.36 versus 6.34 yesterday
• CNY/EUR 6.93 versus 6.94 yesterday
• Yield on 10-Year Government Bond 2.74% versus 2.76% yesterday
• Yield on 10-Year China Development Bank Bond 2.99% versus 3.01% yesterday
• Copper Price -0.20% overnight