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Renminbi Rocks vs. US Dollar, Hong Kong Rebounds

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Key News

Asian equities were mixed overnight as Hong Kong outperformed the region.

Expectations the US interest rate hiking cycle is over fueled China’s renminbi’s gain of +0.58% versus the US dollar to close at 7.17 CNY per USD versus Friday’s close of 7.21 and a recent low of 7.31 on November 2nd (A higher exchange rate means a weaker US dollar). A weakening US dollar could be a tailwind for non-US stocks, including China stocks.

Last week’s Biden-Xi summit should be considered a success in terms of stabilizing the relationship, as evidenced by President Xi’s speech. The San Francisco Examiner published an excellent, complete, English-language transcript and audio of the speech, available via the following link: Read China President Xi Jinping address to APEC CEO Summit | Forum | sfexaminer.com.

Premier Li presided over a meeting of the Central Financial Committee as a follow up to the Central Financial Work Conference (CFWC). The meeting established “key tasks…to improve the quality of financial services for economic and social development.” The Central Economic Work Conference (CEWC), which is set to be held in December, will further outline economic policies.

The 1 and 5-year loan prime rates were left unchanged at 3.45% and 4.2%, respectively, as anticipated, with continued chatter that banks’ reserve requirement ratios (RRRs) will be cut.

Hong Kong had very strong breadth with all sectors positive and advancers beating decliners by 4 to 1. Hong Kong’s most heavily traded stocks by volume were Tencent, which gained +3.62%, Alibaba, which gained +1.64%, and Meituan, which gained +1.58%, as the overall Hang Seng Tech Index gained +2.45% overnight. Mainland investors sold the Hong Kong Tracker ETF, which they bought in size last week via Southbound Stock Connect.

We anticipate good news around electric vehicles (EVs) this week with the Guangzhou auto show taking place.

Li Auto and WuXi AppTec gained +2.42% and +3.49%, respectively, after Friday’s post close announcement they will be included in the Hang Seng Index, effective December 1st.

The Mainland market posted smaller gains compared to Hong Kong, though all sectors were positive as well. Foreign investors bought +$191 million worth of Mainland stocks via Northbound Stock Connect.

Trip.com reports after the US close today and Baidu will report following the close in Hong Kong tomorrow.

After the close, Bloomberg is reporting fifty real estate developers will be eligible for a “range of financing, according to people familiar with the matter”. I’ve not seen the news confirmed elsewhere. US dollar-denominated Asian high yield debt has risen for three weeks in ago since bottoming at the end of October. A little bit of a sleeper rally!

The Hang Seng and Hang Seng Tech indexes gained +1.86% and +2.45%, respectively, on volume that increased +8.55% from Friday, which is 98% of the 1-year average. 400 stocks advanced while 95 stocks declined. Main Board short turnover increased +3.28% from Friday, which is 84% of the 1-year average as 14% of the turnover was short turnover (remember Hong Kong short turnover includes ETF short volume which is driven by market makers’ ETF hedging). The value factor and small caps outpaced the growth factor and large caps.  All sectors were positive as communication services gained +3.22%, consumer staples gained +2.76%, and utilities gained +2.06%. The top-performing subsectors were software, semiconductors, and food & beverages. Meanwhile, professional services and media were the only negative subsectors. Southbound Stock Connect volumes were moderate as Mainland investors sold a net -$783 million worth of Hong Kong-listed stocks and ETFs including Xpeng, which was a small net buy, while the Hong Kong Tracker ETF had a very large net sell, the Hang Seng Tech ETF and Tencent were large net sells.

Shanghai, Shenzhen, and the STAR Board gained +0.46%, +0.65%, and +0.14%, respectively, on volume that increased +11.95% from Friday, which is 106% of the 1-year average. 3,643 stocks advanced while 1,156 declined. Value and growth factors were mixed as small caps outpaced large caps. All sectors were positive including healthcare, which gained +2.22%, consumer staples, which gained +1.63%, and industrials, which gained +1.51%. The top-performing subsectors were computer hardware, education, and energy equipment. Meanwhile, precious metals, securities, and autos were among the worst-performing subsectors. Northbound Stock Connect volumes were light/moderate as foreign investors bought a net $191 million worth of Mainland stocks including Will Semiconductor, Sungrow, and ZTE, which were all small net buys. Meanwhile, Anhui Jianghai Auto Group was a small/moderate net sell and Isoftstone and BYD were small net sells. CNY and Asia dollar index had a strong day versus the US dollar.  Copper gained while steel was off.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

  • CNY per USD 7.17 versus 7.21 Friday
  • CNY per EUR 7.83 versus 7.87 Friday
  • Yield on 1-Day Government Bond 1.54% versus 1.49% Friday
  • Yield on 10-Year Government Bond 2.66% versus 2.65% Friday
  • Yield on 10-Year China Development Bank Bond 2.73% versus 2.72% Friday
  • Copper Price +0.15% overnight
  • Steel Price -0.13% overnight