Key News

Asian equities had a strong day as Japan, Hong Kong, South Korea, and Taiwan all posted 2%+ returns and Australia was the only market to close lower.

Hong Kong had a strong night, led higher by internet stocks on volume that was 133% of the 1-year average and strong breadth of 410 advancers versus 78 decliners. The Hang Seng Index closed above 17,000 at 17,201 and the 200-day moving average is now at 17,305.

Sentiment was boosted by UBS' upgrade of China yesterday (focused on internet and consumer names), and Goldman Sachs’ “re-rating” of Mainland stocks. Also, Hong Kong Exchanges and Ping An Insurance both beat analyst expectations on their Q1 results. Another positive was the fact that Sense Time Group gained +31.15% after releasing their Sense Nova ChatGPT-like large language model.

Hong Kong’s most heavily traded stocks by value were Tencent, which gained +3.55%, Meituan, which gained +4.06%, Alibaba, which gained +3.87%, Kuaishou, which gained +8.15%, Hong Kong Exchanges, which gained +3.55%, and Ping An, which gained +4.24%. Right outside of the top ten volume leaders were JD.com, which gained +4.32%, NetEase, which gained +1.58%, Bilibili, which gained +8.8%, Baidu, which gained +1.61%, and Trip.com, which gained +2.15%. Many trading desks noted that “regional” sentiment has improved as Exhibit A was the $26.1 billion worth of net buying year-to-date of Hong Kong stocks via Southbound Stock, versus $40 billion in 2023. Chinese investors clearly see the shareholder friendly reforms as a catalyst in addition to low valuations and an improving Chinese economy that should flow through to corporate balance sheets. Asian investors will be the next to notice followed. If the rally continues, will it pull money from historical outstanding warrants to Japan and India, or does it come from US technology stocks? We shall see!

Apple’s struggles weighed on the financial results of suppliers Sunny Optical, which fell -3.64%, and, after the close, Mainland-listed GoerTek. Mainland China overcame a morning loss to grind higher all day, posting a small gain, though not on very high volumes like Hong Kong. Real estate was down slightly, despite Shenzhen's relaxing housing purchase restrictions. Foreign investors bought a net $635 million worth of Mainland stocks today.

Secretary of State Blinken lands in Beijing today for meetings. Lots of US media coverage of the TikTok ban, which will be challenged in court and likely thrown out (again), though as our trading buddy Dave says “market no care, you no care”.  Regardless, it is amazing to me the lack of US media coverage of US private equity firms’ ownership of TikTok owner Bytedance, who invests in US pension funds, endowments, and foundations.

Mainland China’s asset management industry is heavily skewed to money market funds, which have assets of RMB 12.4 trillion, accounting for 43% of industry assets under management (AUM), and bond funds, which have assets of RMB 9.4 trillion, accounting for 32% of industry AUM. Meanwhile, equity funds are just RMB 2.8 trillion and account for only 10% of industry AUM. China lacks social safety nets like in the West, which explains citizens’ relatively high savings rate and preference for lower-risk investments. Meanwhile, star managers’ stock positions and changes are widely followed. Reported recently, the top-performing Mainland-listed stocks held by active funds were Kweichow Moutai, CATL, Wuliangye Luzhou Lao Jiao, Zijin Mining, Midea, Hengrui, and Shanxi Fen Wine. It kind of looks like the top ten largest index weights. Not exactly the top ten, but not massively different. Herd mentality with Chinese characteristics!

The Hang Seng and Hang Seng Tech indexes gained +2.21% and +3.61%, on volume that increased +11.7% from yesterday, which is 133% of the 1-year average. 410 stocks advanced, while 78 declined.  Main Board short turnover increased by +14.96% from yesterday, which is 144% of the 1-year average, as 19% of turnover was short turnover (remember Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The growth factor and large caps outpaced the value facto and small caps. All sectors were positive, led by Communication Services, which gained +3.45%, Consumer Discretionary, which gained +3.24%, and Materials, which gained +3.23%. The top-performing subsectors were media, retail, and software. Meanwhile, household products and food & beverage were among the worst-performing. Southbound Stock Connect volumes were high as Mainland investors bought $254 million worth of Hong Kong-listed stocks and ETFs with Bank of China, Kuaishou, and HK Exchanges large net buys, while Meituan was a very large net sell.  

Shanghai, Shenzhen, and the STAR Board gained +0.76%, +1.18%, and +1.48%, respectively, on volume that increased +2.55% from yesterday, which is 93% of the 1-year average. 3,821 stocks advanced, while 1,100 declined. The growth factor outperformed the value factor. The top sectors were tech +2.22%, utilities +1.3%, and communication +0.82%, while healthcare -0.5%, energy -0.09%, and real estate -0.05%. The top sub-sectors were computer hardware, software, and communication equipment, while agricultural, education, and coal were the worst. Northbound Stock Connect volumes were light as foreign investors bought $635mm of mainland stocks, with Ping An a moderate net buy, Wuliangye, and Agriculture Bank small net buys, while CATL, Midea, and Inovance were small net sells. CNY and the Asia dollar index were basically flat overnight. Treasury bonds sold off. Copper fell while steel gained. 

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.24 versus 7.24 yesterday
• CNY Per EUR 7.74 versus 7.72 yesterday
• Yield on 10-Year Government Bond 2.27% versus 2.22% yesterday
• Yield on 10-Year China Development Bank Bond 2.35% versus 2.29% yesterday
• Copper Price -0.27%
• Steel Price +0.11%