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Yellen’s Trip Helps Mend US-China Relations

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Key News

Asian equities were mixed but mostly higher as Mainland China fell while Indonesia and Thailand were on holiday. Hong Kong bounced around the room to manage a small gain for the session, though growth stocks underperformed.

Janet Yellen’s China visit garnered significant attention after discussing “excess capacity” in clean tech (i.e. EV and solar were emphasized, though the trip has been very productive). Despite the negative headlines, Yellen met with Premier Li, People’s Bank of China (PBOC) Chair Pan Gongsheng, Vice Premier He Lifeng, and Ministry of Finance Lan Fo'an. Yellen recommended that China focus its economy on domestic consumption, which is occurring following the Two Sessions. In China, her trip was widely covered in a positive light, though it is a shame her comments on her way out were slanted negative. Regardless, the trip will generate numerous diplomatic work streams with Secretary of State Blinken reported to be visiting China soon. It was good to see the US-China diplomatic relationship improving as business people appear to be getting along just fine with one another. Commerce Minister Wang and China-based electric vehicle (EV) makers met with EU officials, though this was not covered by the US media.

Otherwise, It was a fairly light news night. Nonetheless, it is worth noting that CNY has backed up to 7.23 CNY per USD, as higher for longer US interest rates continue to influence the exchange rate.

Hong Kong’s most heavily traded stocks by value were Tencent, which fell -1.48% despite buying 3.27 million shares today, Meituan, which fell -1% despite buying back 4.57 million shares today, Alibaba, which gained +0.50%, CNOOC, which fell -0.93%, and AIA, which fell -2.52%.

Mainland China underperformed despite strong travel data from the four-day weekend. After the close, the Beijing government solicited opinions on supporting the development of green buildings, which garnered local media attention. Foreign investors sold a net -$420 million worth of Mainland stocks via  Northbound Stock Connect as liquor company and widely-held stock Kweichow Moutai was a large net sale. The National Team’s favored ETFs (tickers 510300 and 510310) saw average volumes though one saw a pickup in end-of-day trading. It is interesting that copper futures in China had a strong session, gaining +2.24%.

The Hang Seng and Hang Seng Tech indexes diverged to close +0.05% and -0.18%, respectively, on volume that increased +35.67% from Friday, which is 102% of the 1-year average. 310 stocks advanced while 168 declined. Main Board short turnover increased +12.52% from Friday, which is 105% of 1-year average, as 18% of 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 outperformed the growth factor and large caps. The top-performing sectors were Utilities, which gained +3.86%, and Industrials, which gained +1.68%. Meanwhile, Consumer Staples fell -1.59%, Communication Services fell -1.1%, and Real Estate fell -0.69%. The top-performing subsectors were utilities, media, and autos. Meanwhile, food/beverage, software, and household products were among the worst-performing. Southbound Stock Connect volumes were moderate/high as Mainland investors bought a net $606 million worth of Hong Kong-listed stocks and ETFs, including Tencent, CNOOC, and China Mobile, which were small net buys. Meanwhile, Semiconductor Manufacturing International (SMIC) was a small net sell, and Huaneng Power was a very small net sell.

Shanghai, Shenzhen, and the STAR Board fell -0.72%, -1.78%, and -2.13%, respectively, on volume that increased +1.4% from last Wednesday, which is 107% of the 1-year average. 833 stocks advanced, while 4,153 declined. The value factor and large caps fell less than the growth factor and small caps. Utilities made up the only positive sector, gaining +3.45%. Meanwhile, Consumer Staples fell -2.83%, Health Care fell -1.72%, and Real Estate fell -1.52%. The top-performing subsectors were power, construction machinery, and precious metals. Meanwhile, liquor, office supplies, and education were among the worst-performing. Northbound Stock Connect volumes were high as foreign investors sold a net -$420 million worth of Mainland stocks, as Inovance, Haier, and LXJM were small net buys. Meanwhile, Kweichow Moutai was a large net sell, and BYD and Midea were small net sells. CNY was off versus the US dollar. Treasury bonds rallied. Copper had a strong positive day, gaining +2.24%.  

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

  • CNY per USD 7.23 versus 7.23 yesterday
  • CNY per EUR 7.84 versus 7.84 yesterday
  • Yield on 1-Day Government Bond 1.44% versus 1.44% yesterday
  • Yield on 10-Year Government Bond 2.28% versus 2.29% yesterday
  • Yield on 10-Year China Development Bank Bond 2.41% versus 2.41% yesterday
  • Copper Price +2.24%
  • Steel Price +0.23%