Key News

Asian equities were largely higher as China, the Philippines, and Malaysia outperformed. Hong Kong and China both opened lower but did a mid-day 180 as reports came in that visitors to China will have their fourteen-day quarantine reduced to seven days. The post-quarantine at-home quarantine was also reduced to three days from seven. Travel-related stocks outperformed today, such as Trip.com HK (9961 HK) +16.54%, Macau casinos, hotels, and airlines. Coincidentally Trip.com (TCOM US) reported Q1 2022 results after the US close yesterday that beat analyst expectations (revenue RMB 4.11B versus estimate RMB 3.85B, adjusted EPS RMB -0.06 versus analyst expectations of RMB -0.46). 

Reports that President Xi will be in Hong Kong this Friday appear to be confirmed, opening the possibility for more financial reform announcements for the city. Western media seems to be picking up on the reality that post-Shanghai’s lockdown, covid policies have been eased from city-wide to specific neighborhoods or residential complexes. PBOC Governor Yi Gang’s TV interview was another equally important but less noticed piece of news. Most of the interview focused on green financing though he spoke about China’s economy at the end, stating twice that “China’s monetary policy is accommodative in supporting the real economy.” He pointed out CPI is 2.1% which is very low compared to most countries’ consumer inflation. He stated, “Maintaining price stability and maximizing employment are our high priorities.”Just like the US Fed?! Ha. A little surprised JD.com HK (9618 HK) was off -2.26% as Prosus announcing they had already sold shares reduces potential selling pressure. Tencent (700 HK) was off by -3.28% on high volume on the news.

Yesterday I mentioned a research report noting the underweighting of China among emerging markets funds. My colleague Dan recommended I share another aspect of the report. The overweight countries in EM funds are predominantly commodity-exporting. Talk about Q2 pain! Managers underweighted the best performer in Q2 (China) and overweighted several of the worst performers. No Bueno.

The Hang Seng and Hang Seng Tech gained +0.85% and +0.61% on volume -12.04% from yesterday, which is 124% of the 1-year average. 351 stocks advanced while 126 declined. Hong Kong short sale turnover was 16% of total Hong Kong turnover as short sale turnover fell by -20.71% from yesterday, which is 126% of the 1-year average. Growth and value factors were mixed as large caps outperformed small caps. Top sectors were utilities +4.62%, industrials +2.98% and energy +2.62% while communication -2.33% and healthcare -0.46%. The top sub-sectors were Macau casino stocks, airlines, and hotels, while fintech and virtual reality were underperformers. Southbound Stock Connect volumes were still elevated/nearly 2X the average, though off from yesterday’s 3X. Tencent, Meituan, and Kuaishou were small net sells, while Li Auto was a small net buy.

Shanghai, Shenzhen, and STAR Board gained +0.89%, +1.21%, and +1.26% on volume -0.62% from yesterday, which is 113% of the 1-year average. 3,225 stocks advanced while 1,202 stocks declined. Growth factors outperformed value factors as large and mid-caps outperformed mega and small caps. Top sectors were tech +2.69%, energy +2.63% and discretionary +1.86% while real estate -1.07% and healthcare -0.37%. Travel-related stocks were the top sub-sector while chicken and pork stocks were off. Northbound Stock Connect volumes were moderate/high as foreign investors bought $694.926mm of Mainland stocks. Treasury bonds sold off (again), CNY appreciated versus the US $ by a minimal amount, and copper managed a gain of +0.98%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.69 versus 6.69 yesterday
• CNY/EUR 7.08 versus 7.06 yesterday
• Yield on 10-Year Government Bond 2.84% versus 2.83% yesterday
• Yield on 10-Year China Development Bank Bond 3.05% versus 3.03% yesterday
• Copper Price +0.98% overnight