Key News

Asian investors did not forget about Fed Chair Powell’s less aggressive comments on interest rate hikes on Friday as equities had a strong start to the week, except for Indonesia. Hong Kong and Mainland China were led higher by growth sectors, especially Hong Kong-listed internet stocks, except for Tencent, which fell -1.56% on big volume.

Tencent was up +4.16% when investor Prosus announced it will “begin selling small numbers of ordinary shares in Tencent” to fund a stock repurchase program. Prosus also announced it had already sold the 131 million shares of JD.com (JD US, 9618 HK) that it received from Tencent’s shareholder-friendly spin-off, sending JD.com HK shares higher by +6.24%. Mainland investors reacted to the news by shooting first and asking questions later as they were net sellers of Tencent via Southbound Stock Connect.

The Hang Seng closed above the 22k level, a big, round, useless number, but Hong Kong’s large warrant market (structured products) could have triggered further buying.

Electric vehicles (EVs), autos, and lithium were largely higher in Hong Kong and Mainland China on reports that Beijing’s local government will provide financial aid to EV car buyers. Hong Kong Exchanges (388 HK) gained +6.95%, potentially helped by chatter that President Xi may attend Friday’s market holiday event. Xi’s past Hong Kong trips have included financial and policy support, which have led to optimism in the past.

The Mainland market shrugged off May industrial profits, which fell -6.5% year-over-year though the year-to-date return is still +1%. The weak release supports further economic policy support.  Foreign investors bought a healthy $1.086B of mainland stocks today as June inflows have been very strong.  My weekend reading included a big global investment bank’s research piece noting that China is -4% underweight in emerging market funds.  Houston!!!  UW when the market is rallying like this is apt to pull these investors into the stocks, especially HK internet stocks. 

The Hang Seng and Hang Seng Tech indexes gained +2.35% and +4.71%, respectively, on volume that was +34.77% higher than Friday, which is 141% of the 1-year average. 394 stocks gained while 96 declined. Hong Kong short sale turnover increased +56.35% from Friday, which is 153% of the 1-year average. Growth factors outperformed value factors while large caps outperformed small caps. The top sectors were technology, which gained +6.78%, consumer discretionary, which gained +4.08%, and materials, which gained +3.64%. Meanwhile, utilities and communication were off -1.07% and -0.21%, respectively. Online health care and Apple ecosystem stocks were top performers while online education was the worst performer. Southbound Stock Connect volumes were very high as mainland investors were net buyers of Hong Kong stocks while Tencent was sold and Kuaishou, Li Auto, and Meituan were bought.

Shanghai, Shenzhen, and the STAR Board gained +0.88%, +1.11%, and +0.17%, respectively, on volume that increased +6.16% from Friday, which is 114% of the 1-year average. 2,524 stocks advanced while 1,811 stocks declined. Growth factors outperformed value factors while large caps outperformed small caps. The top sectors were energy, which gained +3.98%, consumer staples, which gained +2.02%, and consumer discretionary, which gained +1.77% while utilities were off -0.4%. The top subsectors were coal, lithium, and rare earths while cement stocks were the one of the worst. Northbound Stock Connect flows were moderate/high as foreign investors bought $1.1 billion worth of Mainland stocks today. Treasury bonds sold off today, CNY appreciated slightly versus the US dollar, and copper was hit again.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.69 versus 6.69 Friday
• CNY/EUR 7.08 versus 7.06 Friday
• Yield on 1-Day Government Bond 1.18% versus 1.17% Friday
• Yield on 10-Year Government Bond 2.83% versus 2.80% Friday
• Yield on 10-Year China Development Bank Bond 3.03% versus 3.01% Friday
• Copper Price -1.54% overnight