Key News

Asian equities were mixed overnight on light volumes.

Mainland China and Hong Kong were down as investors punted shares in advance of China’s two-day holiday and Hong Kong’s holiday tomorrow though Friday volumes will be absurdly light. We should not read too much into the market’s action due to the light volumes that exacerbate moves. Exhibit A would be the light short turnover, as short sellers remember that saying: "don’t short a dull market".

There was increased chatter about stimulus and rate cuts overnight, including comments from Wang Huning, a senior government official, who emphasized “restoring and expanding consumption.” The China Securities Journal hinted at another bank reserve requirement ratio cut and interest rate cut. Investors are getting impatient at the jawboning and talk like the old Wendy’s commercial “Where’s the beef?”. 

Overnight, we did get a definitive move as the tax waiver on electric vehicles (EVs) was extended through 2027. Hong Kong-listed EV stocks were a rare bright spot today, as BYD gained +0.61%, Li Auto gained +2.18%, XPeng gained +2.23%, and NIO gained +3.97%.

Mainland media also noted that the loan prime rate cut just went into effect, though it will have an impact over time.

President Biden’s comments on President Xi are garnering headlines though the comments were made for a domestic audience at a fundraiser.  Western media often takes messages from both sides geared to domestic audiences as gospel though it isn’t meant for a foreign audience. The timing is less than ideal post-Blinken’s trip, though Mainland media noted talks of increasing flights between the two countries will occur.

Unfortunately, yesterday’s decline in US-listed China stocks did “predict” Hong Kong's move lower.  On Twitter, I post the ADR’s premium/discount versus their Hong Kong close (@ahern_brendan). Remarkably, you can buy the entire China internet stock universe for the market cap of Amazon and still have +$50B in cash despite the former generating more revenue, net income, and free cash flow. More to come on this analysis!  All in all, it was a rough day for Hong Kong and Mainland China. However, after the close, online game approvals were announced, including a game each from Tencent and NetEase. Shanghai’s close below the 3,200 level will likely raise awareness and eyebrows, while Shenzhen sits near the 2,000 level.  

The Hang Seng and Hang Seng Tech indexes fell -1.98% and -2.79%, respectively, on volume that increased +3.95% from yesterday, which is 84% of the 1-year average. 64 stocks advanced, while 438 declined. Main Board short turnover fell -12.87% from yesterday, which is 70% of the 1-year average, as 14% of turnover was short turnover. The value factor “outperformed” (i.e. fell less) than the growth factor as large caps fell less than small caps. Energy was the only positive sector, gaining +0.44%. Meanwhile, technology fell -3.76%, consumer discretionary fell -3.21%, and healthcare fell -3%. Energy and autos were the only positive subsectors, while retail, semiconductors, and pharmaceuticals were among the worst performing subsectors. Southbound Stock Connect volumes were light as Mainland investors sold a net -$416 million worth of Hong Kong stocks, as Meituan was a small net sell and Tencent and Wuxi Biologics were moderate net sells.

Shanghai, Shenzhen, and the STAR Board fell -1.31%, -1.95%, and -3.33%, respectively, on volume that decreased -6.14% from yesterday, which is 115% of the 1-year average. 946 stocks advanced, while 3,748 stocks declined. The value factor “outperformed” (i.e. fell less) than the growth factor as large caps “outperformed” large caps.  Utilities were the only positive sector, gaining +0.04%. Meanwhile, communication services fell -7.46%, technology fell -3.56%, and healthcare fell -2.19%.  The top-performing subsectors were airports, oil and gas, and auto parts. Meanwhile, internet, cultural media, and computer hardware were the worst. Northbound Stock Connect volumes were moderate as foreign investors sold -$89 million of Mainland stocks, as Wuxi Apptec was a small net buy and Kweichow Moutai and Ping An Insurance were small net sells.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.18 versus 7.17 yesterday
• CNY per EUR 7.85 versus 7.84 yesterday
• Yield on 10-Year Government Bond 2.67% versus 2.67% yesterday
• Yield on 10-Year China Development Bank Bond 2.82% versus 2.82% yesterday
• Copper Price +0.69% overnight
• Steel Price -0.85% overnight