Key News

Asian equities were mostly higher overnight following mixed performance on Wall Street yesterday.

China cut the reserve requirement ratio (RRR) by 0.25% overnight. This comes ahead of the release of retail sales, industrial production, and property investment data, which is expected tonight. The cut is welcome as policymakers continue to pursue easing, albeit conservatively. But, it may be an indication that tonight’s release will be somewhat disappointing.

We had several articles published in state media on the capital markets and stock market reform overnight. The Financial News said that the sale of bonds in Hong Kong by the People’s Bank of China, China’s central bank, may help to support the offshore RMB. The China Securities Journal had an article about the slowdown in Mainland IPOs, saying that underwriters and companies are waiting for reforms to take effect, which will lead to more long-term investors entering the market.

Foreign investors sold a net over -$800 million worth of China’s Mainland (A-share) stocks via Northbound Stock Connect. We are back to foreign outflows after a brief period of net inflows last week. Another article in the China Securities Journal warned against using Northbound flows as a barometer of market sentiment and risk. Our broker friend in Hong Kong said that outflows can be exaggerated as offshore investors that sell physical Mainland stocks may make up for that exposure through other instruments.

Developers and the broader real estate sector were off in both Hong Kong and Mainland China as Country Garden nears another deadline on the vote by bondholders on extending its coupon payment deadline.

Xiaomi gained +2.68% in Hong Kong after reaching a deal with Huawei to use some of its 5G patents.

Meanwhile, Yum China, which operates a variety of American fast food brand franchises in China issued a growth notice, forecasting double-digit EPS growth in the next three years.

Energy was one of the top-performing sectors in both Hong Kong and Mainland China on positive momentum in oil prices. China is set to drive oil prices for the near future as a major source of demand. Oil prices seeing momentum after declining mid-year could be a positive sign for China’s economy.

The Hang Seng and Hang Seng Tech indexes both closed higher by +0.21% and +0.44%, respectively, on volumes that increased +2% from yesterday. Mainland investors bought a net $333 million worth of Hong Kong stocks overnight via Southbound Stock Connect. The top-performing sectors were Energy, which gained +3.97%, Materials, which gained +1.49%, and Information Technology, which gained +0.90%. Meanwhile, the worst-performing sectors were Real Estate, which fell -1.55%, Consumer Staples, which fell -0.61%, and Industrials, which fell -0.05%.

Shanghai, Shenzhen, and the STAR Board diverged to close +0.11%, -0.64%, and -0.94%, respectively, on volume that decreased -5% from yesterday. Foreign investors sold a net $819 million worth of Mainland stocks overnight via Northbound Stock Connect. The top-performing sectors were Energy, which gained +2.36%, Utilities, which gained +1.51%, and Health Care, which gained +0.15%. Meanwhile, the worst-performing sectors were Consumer Discretionary, which fell -1.36%, Information Technology, which fell -1.00%, and Real Estate, which fell -0.92%.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.28 versus 7.27 yesterday
• CNY per EUR 7.76 versus 7.80 yesterday
• Yield on 1-Day Government Bond 1.45% versus 1.45% yesterday
• Yield on 10-Year Government Bond 2.61% versus 2.62% yesterday
• Yield on 10-Year China Development Bank Bond 2.73% versus 2.74% yesterday
• Copper Price +0.26%
• Steel Price +0.85%