Key News

Asian equities were largely lower as regional investors appeared more concerned about the US CPI print than US investors. The Asia dollar index was off overnight with India underperforming the region. 

Mainland China and Hong Kong took a breather from the recent rally, fading in afternoon trading to close basically flat. Profit-taking in several Mainland growth stocks and recently hot sectors like real estate appears to be a culprit.

Despite a constant barrage of negative media coverage on TikTok, the Mainland China and Hong Kong markets have been exceedingly resilient in a very positive signal, in my opinion (yes, knocking on wood). The Roman emperors gave the masses bread and Gladiator games while we get this nonsense. The case will go to court, as it has twice previously, where, unless evidence is provided, it will be thrown out. 

It was a fairly quiet overnight, though Mainland investors bought a very healthy $1.459mm of Hong Kong ETFs and stocks via Southbound Stock Connect. The buying was concentrated in the Hong Kong Tracker ETF and, to a lesser degree, the Hang Seng Tech and China Enterprise ETFs as they bought the dip. Hong Kong-listed growth stocks outperformed with Hong Kong’s most heavily traded stock Tencent was negative, pulling a James Bond by falling -0.07% with financial results next Wednesday. Meituan gained +1.02% with its financial results coming next Friday, Alibaba fell -1.14%, and Hong Kong Exchanges gained +0.32%. Meanwhile, BYD fell -0.10% and sports apparel maker Li Ning fell -3.39% after yesterday’s big jump on the founder/Executive Chairman/namesake Olympic medalist Li Ning raising the question of whether the company should go private. 

Mainland China posted small losses, though electric vehicle (EV) battery giant CATL saw the third day of very strong net buying from foreign investors via Northbound Stock Connect following an analyst upgrade.

After the close, the State Council released an Action Plan focused on “the expansion of domestic demand and deepening supply-side structural reform” focused on “equipment renewal, trade-in-for-new consumer goods, recycling and upgrading standards.” Trade-in focus is on autos, home appliances, and home decorations. It was a fairly quiet night as the rally goes stealth mode!

The Hang Seng and Hang Seng Tech indexes fell -0.07% and +0.34%, respectively, on volume that declined -19.68% from yesterday, which is 122% of the 1-year average.  192 stocks advanced, while 289 declined.  Main Board short turnover declined -0.02% from yesterday, which is 134% of the 1-year average, as 19% of turnover was short turnover (remember HK short turnover includes ETF short volume, which is driven by market makers’ ETF hedging).  The growth factor and small caps fell less than the value factor and large caps. The top-performing sectors were Materials, which gained +1.9%, Health Care, which gained +1.56%, and Utilities, which gained +1.46%. Meanwhile, Real Estate fell -1.8%, Financials fell -1.49%, and Consumer Staples fell -0.83%. The top-performing subsectors were materials, pharmaceutical biotechnology, and utilities, while food/staples, insurance, and healthcare equipment were the worst. Southbound Stock Connect volumes were high as mainland investors bought a healthy $1.459mm of HK stocks and ETFs, with the HK Tracker ETF seeing a very large net buy, the HS Tech ETF a moderate/large net buy, and the HS China Enterprise ETF a small net buy while China Mobile, Li Auto, and Meituan were small net sells. 

Shanghai, Shenzhen, and the STAR Board fell -0.4%, -0.11%, and -0.34%, respectively on volume that declined -7.93% from yesterday, which is 121% of the 1-year average. 2,606 stocks advanced, while 2,233 declined.  All factors were negative, with the growth factor and small caps falling less than the value factor and large caps. The top sectors were communication +0.76%, utilities +0.28%, and discretionary +0.22%, while real estate -2.53%, financials -1.57%, and staples -1.22%. The top-performing subsectors were cultural media, internet, and software. Meanwhile, insurance, real estate, and agriculture were among the worst-performing subsectors.  Northbound Stock Connect volumes were moderate as foreign investors bought $217mm of mainland stocks, with CATL seeing another large net buy, Midea Group and Cits moderate net buy, while Kweichow Moutai, Changan Auto, and Longi Green Tech were small net sells. CNY fell versus the US dollar along with the Asia dollar index. Treasury bonds rallied. Copper gained while steel fell.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.19 versus 7.17 yesterday
• CNY per EUR 7.86 versus 7.84 yesterday
• Yield on 10-Year Government Bond 2.33% versus 2.34% yesterday
• Yield on 10-Year China Development Bank Bond 2.47% versus 2.48% yesterday
• Copper Price +0.46%
• Steel Price -0.19%