Key News

Asian equities ended a positive July on a high note, except for Taiwan and the Philippines.

Hong Kong and Mainland China both ripped higher at the open though curtailed gains over the course of the trading day.  Volumes were very high as Hong Kong stocks traded at 122% of the 1-year average volume, and Mainland China traded 124% of the 1-year average. Mainland China volume exceeded RMB 1 trillion for the first time since July 3^rd, Southbound Stock Connect volume was more than 2X the recent average, and Northbound Stock Connect volumes were at MSCI rebalance day levels.

Last Friday’s release that a coordinated policy response focused on domestic consumption with an emphasis on autos and home appliances drove those sectors and related stocks higher. The State Council and National Development and Reform Commission held a press conference overnight, at which they released twenty measures “in order to deeply implement the strategy of expanding domestic demand”.  The measures outlined areas of “bulk consumption” beyond the three included initially. The release also included mentions of “expanding service consumption” with a focus on restaurants and domestic tourism, “promoting rural consumption”, “expanding new consumption,” including digital. This bullet point explains the strong performance of Hong Kong-listed internet stocks as the government will “promote the development of digital consumption norms such as s e-commerce, live broadcast economy, and online entertainment.” 

It was not surprising that Hong Kong’s most heavily traded stocks by value were Tencent, which gained +1.14%, Alibaba, which gained +1.67%, despite talk that an Ant IPO is not likely in the short term. Meanwhile, Meituan gained +2.74%, Kuaishou gained +2.67%, and Xpeng gained +1.94%. Consumer Discretionary stocks were the top-performing sector in Mainland China, including Kweichow Moutai, which was a large net buy from foreign investors via Northbound Stock Connect.

You would never know it from Western media coverage, but the July Manufacturing PMI beat expectations. Nonetheless, export orders are still weak, indicating the global economy is slowing. Business expectations increased while non-manufacturing was weak, but still expanding with a reading above 50. New orders and new export orders weakened with property’s construction as the major culprit. PMIs and business expectations are diffusion indexes, meaning that readings above 50 indicate expansion, while readings below 50 indicate contraction.

Beijing, Shenzhen, and Guangzhou announced regional property support measures. However, Hong Kong-listed real estate stocks were weak after Country Garden’s Yang Huiyan announced that she will donate $826 million worth of shares to her foundation, though promised not to sell for ten years. 

Hotpot restaurant Haidilao (6862 HK) gained +12.17% after announcing first half 2023 profit would be RMB 2.2 billion, which is ahead of expectations. This is a good sign that China’s consumer is coming back online. After the close in the US, Yum China will report financial results, as Q2 earnings season picks up for ADRs.

The Hang Seng and Hang Seng Tech indexes gained +0.82% and +1.87%, respectively, on volume that increased +32.55% from Friday, which is 162% of the 1-year average. 319 stocks advanced while 183 stocks declined. Main Board short sale turnover declined -6.26% from Friday, which is 122% of the 1-year average, as 13% of turnover was short turnover. Growth outperformed value while large caps outperformed small caps. The top-performing sectors were materials, which gained +2.79%, consumer discretionary, which gained +2.2%, and utilities, which gained +1.44%. Meanwhile, real estate fell -1.14% and healthcare fell -0.33%.  The top-performing subsectors were materials, autos, and retail, while telecom, real estate, and pharmaceuticals were among the worst. Southbound Stock Connect volumes were very high at more than 2X the recent average as Mainland investors sold a net -$764 million worth of Hong Kong-listed stocks and ETFs as Tencent was a large net sell, Meituan and Kuiashou were moderate net buys, and XPeng and Li Auto were small net sells.

Shanghai, Shenzhen, and the STAR Board gained +0.46%, +0.82%, and +0.66%, respectively, on volume that increased +16.69% from Friday, which is 124% of the 1-year average. 3,191 stocks advanced while 1,510 declined. Growth outperformed value while small caps outpaced large caps. The top-performing sectors were consumer discretionary, which gained +2.19%, communication services, which gained +1.94%, and industrials, which gained +1.83%. Meanwhile, healthcare fell -2.27% and energy fell -0.2%.  The top-performing subsectors were autos, internet, and agriculture. Meanwhile, healthcare, telecom and biotech were among the worst. Northbound Stock Connect volumes were high as foreign investors bought a net $1.307 worth of Mainland stocks as Kweichow Moutai was a large net buy, and Ping An and China Tourism Duty Free were small net buys.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.15 versus 7.15 Friday
• CNY per EUR 7.89 versus 7.88 Friday
• Yield on 1-Day Government Bond 1.40% versus 1.33% Friday
• Yield on 10-Year Government Bond 2.66% versus 2.65% Friday
• Yield on 10-Year China Development Bank Bond 2.77% versus 2.77% Friday
• Copper Price +0.89% overnight
• Steel Price +0.21% overnight