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Swiss Interest Rate Hike Turns Asian Equities into Swiss Cheese as Mainland Investors Ignore Risk Off

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Asian markets had a decent day until the Swiss National Bank unexpectedly raised interest rates 50 basis points sending risk assets south immediately. 

Returns were determined by time zone as India in the west took the brunt of the risk off versus eastern markets like Japan. Hong Kong took the news worse than Mainland China as the Hang Seng Index did a 180 from gaining +1.12% to closing down -2.17% with higher beta growth stocks like Hong Kong internet plays off following a nice rally of late.  

Mainland investors bought the dip via Southbound Stock Connect.  Chinese investors weren’t overly concerned as Shanghai slipped from being slightly up +0.43% to closing in the negative at -0.61% while Shenzhen and STAR managed gains for the day as growth stocks outperformed. Foreign investors added to the Mainland China holdings with another $662mm of net buying via Northbound Stock Connect. 

Hong Kong followed the US Fed by raising interest rates as expected in order to maintain their US dollar currency peg. 

Online education stocks have risen from the ashes in a spectacular fashion as Koolearn Technology (1797 HK) jumped +72% and Tianli Education (173 HK) gained +105% respectively.  New Orient Education (9901 HK, EDU US) jumped +22% Wednesday on a broker upgrade as the company disguises online education by selling goods online. Not sure how long it will last as I’m sure short covering is a factor in the massive moves.  NIO HK (9866 HK) bucked the downdraft gaining +4.16% after releasing its new ES7 SUV. Audi has sued Nio over the name of its cars. Overall, a fairly quiet night from a news perspective.

The Hang Seng and Hang Seng Tech Index were down -2.17% and -3.33% on volume +6.32% from yesterday which is 116% of the 1-year average.  77 stocks advanced while 405 declined.  The Hang Seng short-selling turnover increased +10.23% which is 118% of the 1-year average.  Growth and value factors were mixed as large caps “outperformed” small caps.  All sectors were off with the worst performers being energy -4.16%, communication -3.6%, and discretionary -2.84%.  Online education and liquor were the sub-sector outperformers while online video and coal were among the worst performers.  Southbound Stock Connect volumes were high as Mainland investors sold Tencent and Meituan small while buying Kuaishou small.

Shanghai, Shenzhen and STAR Board diverged closing -0.61%, +37%, and +1.53% on volume -16.77% from yesterday which is 100% of the 1-year average.  There were 2,548 advancing stocks and 1,801 declining stocks.  Growth factors outperformed value factors as small caps outperformed large caps.  Growth sectors led the way with communication up +1.63%, tech +1.58%, and healthcare +1.39% while energy -4.3%, financials -2.45%, and utilities -1.07%.  Northbound Stock Connect volumes were moderate/high as foreign investors bought $662mm of Mainland stocks.  Treasury bonds rallied while CNY was flat versus the US dollar and copper off -0.32%.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.71 versus 6.71 yesterday
  • CNY/EUR 6.98 versus 7.03 yesterday
  • Yield on 10-Year Government Bond 2.77% versus 2.78% yesterday
  • Yield on 10-Year China Development Bank Bond 2.98% versus 2.99% yesterday
  • Copper Price -0.32% overnight