Growth Stocks Clipped, China & US Contend With Slowing GDP Growth, Week in Review
3 Min. Read Time
Week in Review
- Asian equities had a mixed but mostly higher week as markets digested the Fed’s rate cut of 75 basis points, as expected, on Wednesday and a bailout fund for China real estate developers, which had a volatile week in the equity market.
- Alibaba announced Tuesday that its board of directors had decided to apply for a primary listing in Hong Kong, which could open the stock up to Mainland investors via Southbound Stock Connect.
- The US Senate on Tuesday advanced the $280 billion America COMPETES bill, which will not include the provision to shorten the Holding Foreign Companies Accountable Act compliance window that was included in an earlier draft.
- Biden and Xi Jinping spoke for two hours on Thursday morning while Gary Gensler, in a statement to the Center for Audit Quality, said that he needs protocols for a China audit visit to be laid our “soon” to avoid delisting.
Asian equities were mixed overnight as Hong Kong lagged as China’s leaders refrained from mentioning the 5.5% GDP growth target at the Politburo meeting and growth and internet stocks were clipped.
In a release following the Politburo meeting this week, China’s leaders left out any discussion of the 5.5% GDP growth target and stated that the country should instead “achieve the best outcome possible while adhering to strict covid-zero policy." China’s economic officials indicated at the beginning of the year that they might be moving away from specific GDP targets, so this is not surprising. While they did issue a 5.5% GDP target, headwinds for the economy have been mounting. Meanwhile, the US recovery has officially slowed, per yesterday’s report of a year-over-year decline in US GDP in the second quarter. This will also have a negative impact on China. We must remember that there are hurdles to growth materializing globally.
Alibaba and Meituan both fell by over -6% overnight. According to an article in the South China Morning Post, a Hangzhou authority summoned the platforms over food safety. The news comes just as China has signalled an easing of a long period of increased regulatory scrutiny for the platform economy. It is interesting that this is coming out of Hangzhou and not Beijing, as it flies against a reiteration by the Politburo this week that the regulatory cycle is over. This seems like a case of "shoot first and ask questions later."
Also weighing on growth overnight were falling optimism about a speedy Ant Group IPO and investors’ questioning Alibaba’s timeline for Southbound inclusion after its shares became dual-primary listings in New York and Hong Kong. Internet earnings begin next week with Alibaba on Thursday. It will be interesting to see how China’s internet giants performed in the second quarter, which is shaping up to be a slow one for US tech based on earnings releases so far. Apple noted that China’s lockdowns had a significant impact on its production, leading its profit to fall. This demonstrates that, unfortunately, US technology and internet companies are vulnerable to many of the same risks as China internet. The bright side is that the latter trades at a significantly lower valuation.
What will happen if Alibaba beats next week? Given the amount of pessimism already built into the price, we could see the stock reclaim a great deal of ground. And, if it misses, how much lower can we go?
Real estate was lower overnight in Hong Kong and Mainland China. The Politburo provided some encouraging comments on helping distressed developers complete their projects. However, it did not go so far as to issue major stimulus. Country Garden Holdings fell -4% in Hong Kong.
Biden’s meeting with Xi appears to have gone well enough, as their conversation lasted nearly 2 hours. Reportedly, the two leaders also agreed to meet in person in the near future. However, questions remain about whether Pelosi will go through with her visit to Taiwan.
The Hang Seng and Hang Seng Tech Indexes fell -2.26% and -4.86%, respectively, overnight on volume that increased +44% from yesterday, which is near the 1-year average. Hong Kong short sale turnover surged +64% overnight. It was a mixed night from a factor perspective, but value factors had a slight edge. Mainland investors net sold approximately $90 million worth of Hong Kong stocks overnight via Southbound Stock Connect.
Shanghai, Shenzhen, and the STAR Board closed -0.89%, -1.00%, and +1.79%, respectively, on volume that was nearly flat from yesterday. Foreign investors net sold $250 million worth of Mainland stocks overnight via Northbound Stock Connect.
Government bond yields declines somewhat overnight, CNY was flat versus the dollar and euro, and copper gained +0.69%.
Last Night’s Exchange Rates, Prices, & Yields
- CNY/USD 6.75 versus 6.75 yesterday
- CNY/EUR 6.86 versus 6.86 yesterday
- Yield on 1-Day Government Bond 1.15% versus 1.05% yesterday
- Yield on 10-Year Government Bond 2.76% versus 2.79% yesterday
- Yield on 10-Year China Development Bank Bond 2.93% versus 2.95% yesterday
- Copper Price +0.69% overnight