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Short Selling Rules Lift Hong Kong Intra-Day

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Key News

Asian equities were mixed overnight as Japan outperformed and Hong Kong was basically flat on increased restrictions on the ability to short stocks listed on the city’s exchange.

Many analysts are heralding the sharp intra-day swings in China indexes as a sign of a bottom. Whether that is true is difficult to say. Nonetheless, we believe China’s equity market remains deeply undervalued. More improvements in the economy and policy support are likely what the market needs to go higher again, though short sale rules are a good development.

Speaking of economic improvements, January’s Caixin Services PMI, which is a privately gathered survey of non-manufacturing businesses, came in at 52.7, showing an expansion month-over-month for a second consecutive month. While the release is said to have “missed” estimates and was not as expansionary as December’s reading, consistent 50-plus readings from the gauge is what we like to see when it comes to a gradually improving economy. PMIs are diffusion indexes with readings above 50 indicating expansion and readings below 50 indicating contraction.

Among internet names, which ended mixed but mostly positive, food delivery and local services giant Meituan was a performance leader. Meanwhile, Alibaba was flat. Baidu fell -1.08% on ERNIE bot android app reviews.

The Hang Seng and Hang Seng Tech indexes both closed lower by -0.15% and -0.17%, respectively, on volume that decreased -8% from Friday. Mainland investors purchased a healthy net $500 million worth of Hong Kong-listed stocks and ETFs overnight via Southbound Stock Connect. The top-performing sectors overnight were Consumer Discretionary, which gained +0.34%, Communication Services, which gained +0.06%, and Energy, which fell -0.01%. Meanwhile, the worst-performing sectors were Materials, which fell -2.50%, Utilities, which fell -1.74%, and Real Estate, which fell -1.34%.

Shanghai, Shenzhen, and the STAR Board diverged to close -1.02%, -3.93%, and +0.50%, respectively, on volume that increased +9% from Friday. Foreign investors purchased a net $156 million worth of Mainland stocks overnight. The top-performing sectors were Health Care, which gained +1.61%, Consumer Staples, which gained +1.25%, and Energy, which gained +1.21%. Meanwhile, the worst-performing sectors were Communication Services, which fell -3.67%, Real Estate, which fell -3.62%, and Materials, which fell -1.03%.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields.

  • CNY per USD 7.20 versus 7.19 Friday
  • CNY per EUR 7.73 versus 7.76 Friday
  • Yield on 1-Day Government Bond 1.60% versus 1.64% Friday
  • Yield on 10-Year Government Bond 2.40% versus 2.41% Friday
  • Yield on 10-Year China Development Bank Bond 2.58% versus 2.60% Friday
  • Copper Price -0.83%
  • Steel Price -0.81%