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Daily Posts December 22, 2022

Hong Kong Rally Enjoys The Silence

3 Min. Read Time

Key News

Asian equity markets had a good day as Hong Kong outperformed while Mainland China and India were off.

The nattering nabobs of negativity are so focused on COVID's spread in China that they appear to be missing the Hong Kong market’s rebound. The top-performing sectors in both Mainland China and Hong Kong were consumer discretionary, consumer staples, and communication! Have you noticed how stable CNY has been over the past few weeks? The currency's stability indicates an improvement in risk appetites.

While our Chinese City Mobility Tracker shows declines in traffic and metro usage though several cities are showing stabilization. It was interesting to see a nice jump in volumes in Hong Kong.

The big news overnight was the potential relaxation of inbound China quarantines, to occur in early January. The requirement for foreign arrivals will be reduced to 0+3 (no government facility quarantine, followed by three days of home quarantine).

Also, the CSRC reiterated its policy support for the real estate sector following the PBOC and State Council’s releases. The WTO ruled in favor of China and against the US in a trade dispute dating back to the previous administration. FedEx and Nike’s better-than-expected financial results were also a catalyst as the latter’s China revenue was off only -3% year-over-year.

Hong Kong’s most heavily traded were Tencent, which gained +4.12%, Meituan, which gained +6.89%, and Alibaba, which gained +4.09%, as internet and electric vehicle (EV) stocks had a good day. Hong Kong shorts have been quiet during this rally, which was true today as well though Alibaba’s short turnover accounted for 34% of the total turnover. Mainland China was up all day though sold off into the close to close down though sectors were mixed, and foreign investors were net buyers to the tune of $403 million. Cleantech was off as CATL fell -1.18% despite announcing that their German EV battery plant is up and running.

We speak often about how onshore China and offshore China are two distinct markets. Onshore China, which is 95% owned by investors in China, reflects what the Chinese think about China. Offshore China (represented by US-listed ADRs and Hong Kong stocks) is reflective of what foreign investors think about China. Over the last two years, we have favored onshore over offshore due to all of the negative news from foreign media weighing on sentiment. However, now I might lean more toward offshore China to capture the recovery in sentiment.

The Hang Seng and Hang Seng Tech indexes gained +2.71% and +4.61%, respectively, on volume that was up +46.45% from yesterday, which is 82% of the 1-year average. 390 stocks advanced while 94 stocks declined. Main Board short turnover increased +52.95% from yesterday, which is 72% of the 1-year average as 15% of turnover was short turnover. Value and growth factors were mixed as small caps edged out large caps. The top-performing sectors were consumer discretionary, which gained +5%, communication, which finished up +4.42%, and consuer staples, which closed higher by +3.84%, while materials represented the only down sector, falling -0.53%. The top-performing subsectors were software, media, and retail, while materials and food were the only down subsectors. Southbound Stock Connect volumes were light as Mainland investors bought $99 million worth of Hong Kong stocks overnight as Kuaishou was a slight net buy and Tencent and Meituan were moderate net buys.

Shanghai, Shenzhen, and the STAR Board eased to close lower by -0.46%, -0.72%, and -1.07%, respectively, on volume that increased +14.65% from yesterday, which is 70% of the 1-year average. 826 stocks advanced while 3,850 stocks declined. Value factors “outperformed” growth factors as large caps outpaced small caps. The top-performing sectors were communication, which gained +1.62%, consumer staples, which gained +1.5%, and consumer discretionary, which gained +0.57%, while energy fell -2.13%, materials fell -1.85%, and technology fell -1.33%. The top-performing subsectors were the chemical industry, education, and office supplies, while chemicals, fertilizer, and chemical fiber were among the worst. Northbound Stock Connect volumes were light as foreign investors bought $403 million worth of Mainland stocks overnight. CNY was basically flat versus the US dollar, closing at 6.98, CNY per USD Treasury bonds rallied again, and copper gained +0.52%.