Industrial Profits Send Stocks Higher

Key news

Asian equities had a positive day on light volumes. 

Mainland China and Hong Kong posted gains on light volumes ahead of China’s weeklong holiday that starts on Friday. Markets jumped on the release of August industrial profits, which rose +17.2% year-over-year versus July’s -6.7%, in another sign that China’s economy is rebounding, albeit slowly and incrementally. The People's Bank of China (PBOC) released meeting notes from their quarterly Monetary Policy Committee that articulated the central bank’s efforts to support the economy through monetary policy and “focus on expanding domestic demand, boosting confidence, accelerating a virtuous economic cycle, and providing support for the real economy.” 

Foreign investors’ net buying of Mainland stocks also helped sentiment. Pharmaceutical stocks were the top-performing subsector and healthcare was the best-performing sector in both Hong Kong and Mainland China, following several US-listed biotech stocks flying on several successful drug studies and trials.

Hong Kong-listed internet stocks had a positive day after Alibaba’s logistics arm Cainiao filed for a Hong Kong listing yesterday. Shanghai and Shenzhen managed to rise above the 3,100 and 1,900 levels. The Shanghai and Shenzhen Stock Exchanges released rules that will limit insider selling while incentivizing paying dividends. Previously, rules limited parent companies from selling shares, which resulted in one hundred companies canceling planned share sales. IPOs have been limited as efforts to prevent more supply and increase demand equates to the government telling us to buy stocks. Evergrande was back in the news as their chairman is being investigated, though we should expect distressed players to be in the news whenever a bond coupon or principal payment is due. Overall, we’ll take the up day.

Do you know when China’s last recession was? 1993! That is something to remember when the nattering nabobs of negativity call for the collapse of China’s economy.

China’s import of commodities has declined. The renminbi’s decline is a factor as the value of imports declines with the currency. A better tool is looking at the tonnage of imports, which has been shockingly resilient. China’s import of both oil and copper continues to increase, which runs counter to the common economic narrative. I have more work to do on this subject!

The Hang Seng and Hang Seng Tech indexes gained +0.83% and +0.43%, respectively, on volume that decreased -7.92% from yesterday, which is 66% of the 1-year average. 267 stocks advanced, while 198 declined. Main Board short turnover declined -0.95% from yesterday, which is 71% of the 1-year average, as 18% of turnover was short turnover. Value and growth factors were both off as large caps edged out small caps. The top-performing sectors were healthcare, which gained +3.49%, technology, which gained +1.89%, and energy, which gained +1.25%. Meanwhile, materials fell -1.5%, industrials fell -0.13%, and real estate fell -0.06%. The top-performing subsectors were pharmaceuticals, semiconductors, and insurance. Meanwhile, materials, food, and autos were among the worst. Southbound Stock Connect volumes were light as Mainland investors bought a net $470 million worth of Hong Kong-listed ETFs and stocks as Meituan, Tencent, and Kuiashou were small/moderate net buys, while CNOOC, China Mobile, and Innovent were small net sells.

Shanghai, Shenzhen, and the STAR Board gained +0.16%, +0.39%, and +0.47%, respectively, on volume that increased +7.86% from yesterday, which is 82% of the 1-year average. 3,157 stocks advanced, while 1,576 stocks declined. The growth factor outperformed the value factor, while small caps outperformed large caps. The top sectors were healthcare +1.48%, tech +0.69%, and industrials +0.42%, while utilities -0.62%, energy -0.56%, and financials -0.49% were the worst. Tops sub-sectors were power generation equipment, pharma, and energy equipment, while precious metals, computer hardware, and highway industry were the worst. Northbound Stock Connect volumes were light/moderate as foreign investors bought +$246 million of Mainland stocks, with Longi seeing a large net inflow, Wuxi and Kunlun small/moderate net buys, while CATL, Zhongji, and Wuliangye were small/moderate net sells. CNY and the Asia dollar index were off small versus the US dollar. Treasury bonds rallied while copper and steel were off.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.31 versus 7.30 yesterday
• CNY per EUR 7.72 versus 7.74 yesterday
• Yield on 10-Year Government Bond 2.69% versus 2.69% yesterday
• Yield on 10-Year China Development Bank Bond 2.77% versus 2.78% yesterday
• Copper Price -0.49% overnight
• Steel Price -0.35% overnight