Week in Review

• Asian equities were mostly higher this week as the US Fed paused interest rate hikes, the PBOC made multiple cuts to key lending rates, policymakers hinted at more stimulus, and China released May economic data that was largely in line with expectations.
• The electric vehicle ecosystem continued its gains from last week as Xpeng led on better-than-expected pre-sales for its new G6 model.
• US Secretary of State Antony Blinken will travel to China this weekend in a significant milestone for US-China relations.
• Hong Kong Exchanges announced that it will allow trading of certain names in CNY so that Mainland investors can avoid the need for currency conversion.

Friday’s Key News

Asian equities ended a positive week higher on high volumes driven by FTSE indices rebalancing and the US’ quad witching (stock and index futures and options expiration).

In professional golf, they call Saturday “moving day” as golfers try to position themselves for Sunday’s final round. Similarly, big liquidity events like today allow institutional investors to shuffle their portfolios. Remember that institutional investors and active fund managers have been underweight China as many strategists are noting that ownership levels are back to October 2022 levels.

One positive catalyst today was National Development and Reform Commission (NDRC) spokesperson Meng Wei stating that “policy documents on restoring and expanding consumption will be formulated and introduced as soon as possible”. Meanwhile, Premier Li attended a State Council meeting focused studying “policy measures to promote the sustained economic recovery”. There is also chatter on stimulus measures coming, which is lifting the market.

President Xi met with Bill Gates. The Chinese president stated, “You’re the first American friend I’ve met in Beijing this year”.  No US diplomat has met with Xi this year? That is not surprising the relationship has suffered, though Secretary of State Blinken will be in Beijing this weekend. Hopefully, the two sides can repair the relationship.

Mainland China and Hong Kong had a strong day as both markets benefitted not only from FTSE’s small increase in China’s country weight but also from Alibaba as Softbank’s sale of shares increased the company’s free-float market cap, requiring a higher weight in indices. Before they were sold, Softbank’s shares were not available to the public.

Hong Kong volumes were very exceptionally high at 151% of the 1-year average, as all sectors were higher overnight. The most heavily traded stocks by value were Alibaba, which gained +2.92% on volume that was 3X yesterday’s volume (176 million shares versus 58 million yesterday), Tencent, which gained +2.25%, Meituan, which gained +0.58%, Kuaishou, which fell -2.05%, and China Construction Bank, which gained +0.80%.

It was another interesting day as Mainland investors sold a net -$1.23 billion worth of Hong Kong stocks, which is a very high level. I suspect the money is coming out of Hong Kong-listed ETFs as I’m not seeing big outflows in individual stocks, except for Kuaishou, which was a large net sell and down today. Figuring out the reason will be my weekend homework assignment! Equally interesting was foreign investors buying a net +$1.5 billion worth of Mainland stocks via Northbound Stock Connect.  Mainland China was higher too as utilities constituted the only down sector, falling -0.45% on moderate volumes. CNY started the week at 7.14 CNY per USD and closed today at 7.12 CNY per USD. On Monday, we have the lowering of the 1 and 5-year loan prime rates.

The Hang Seng and Hang Seng Tech indexes gained +1.07% and +0.84%, respectively, on volume that increased +44.52% from yesterday, which is 151% of the 1-year average. 364 stocks advanced while 123 declined. Main Board short turnover increased +57.27% from yesterday, which is 143% of the 1-year average as 16% of turnover was short turnover.  Value factors outperformed growth factors as small caps outpaced large caps.  All sectors were positive as materials gained +2.38%, healthcare gained +2.26%, and consumer discretionary gained +1.54%. The top-performing subsectors were pharmaceuticals, retail, and materials. Meanwhile, media, telecoms, food, and consumer staples were among the worst.  Northbound Stock Connect volumes were high as Mainland investors sold a net -$1.23 billion worth of Hong Kong stocks as Meituan was a large net sell, Tencent was a moderate net sell, and Meituan was a very small net buy.

Shanghai, Shenzhen, and the STAR Board gained +0.63%, +0.99%, and +1.84%, respectively, on volume that declined -0.39% from yesterday, which is 116% of the 1-year average. 2,917 stocks advanced while 1,671 stocks declined. Growth factors outperformed value factors as large caps outpaced small caps. The top-performing sectors were technology, which gained +3.23%, industrials, which gained +1.79%, and consumer staples, which gained +1.71%. Meanwhile, utilities constituted the only down sector, falling -0.43%. The top-performing subsectors were computers, software, and construction. Meanwhile, motorcycles, highways, and the power industry were among the worst-performing. Northbound Stock Connect volumes were high as foreign investors bought a net $1.5 billion worth of Mainland stocks. LONGi Green Energy was a moderate sell, while Kweichow Moutai and Foxconn were moderate net buys within Northbound Stock Connect. CNY and the Asia Dollar Index gained versus the US dollar, while Treasury bonds sold off. Copper and steel gained.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.12 versus 7.12 yesterday
• CNY per EUR 7.79 versus 7.80 yesterday
• Yield on 1-Day Government Bond 1.25% versus 1.25% yesterday
• Yield on 10-Year Government Bond 2.66% versus 2.65% yesterday
• Yield on 10-Year China Development Bank Bond 2.82% versus 2.81% yesterday
• Copper Price +0.71% overnight
• Steel Price +0.99% overnight