Key News

Asian equities were mixed overnight as South Korea outperformed while Hong Kong and India underperformed.

Hong Kong’s 10-day win streak was snapped on a bout of good, old-fashioned profit-taking as the growth/internet names that have been outperforming were hit the hardest. Bulls should note that today’s move was on light volume compared to the volumes on the way up. Despite the pullback, breadth (i.e. advancers vs. decliners) was not bad. The bears should note that Mainland investors bought the dip via Southbound Stock Connect, to the tune of $273 million.

After moving from the low on January’s 31^st of 15,485 to today’s 18,479, a breather was more than overdue for the Hang Seng. Q1 earnings season will kick off next week, with Alibaba and Tencent reporting next Tuesday morning. Further out will be the Third Plenum, the major economic meetings in July, though the amplification of policy support is increasing. 

Overnight, there was continued chatter about home appliance upgrades and purchases ticking up. Hong Kong’s most heavily traded stocks by value were Tencent, which fell -1.19%, Meituan, which fell -3.99%, Alibaba, which fell -1.82%, Kuaishou, which fell -4.76%, and AIA, which fell -2.00%. Despite growth/internet names being the focus of profit-taking, the market held up well otherwise. Real estate was the top-performing sector on the Mainland, following Shenzhen's loosening of its housing purchase restrictions yesterday. The sector rose +2.47% in Mainland China and +1.4% in Hong Kong. Energy also had a strong day, gaining +0.53% in Hong Kong and +0.99% in Mainland China. Mainland markets bounced the room in a choppy session, which saw Shanghai gain +0.22% and Shenzhen gain +0.24%. Foreign investors were net sellers of Mainland stocks via Northbound Stock Connect, though Kweichow Moutai saw a strong net buy.

President Xi’s visit with President Macron in France included a call to “fend off a new Cold War.” The US dollar was a touch stronger overnight, sending CNY and the Asia Dollar Index lower.

It's funny to me to hear an investor say, “I’m not going to invest in China,” and then you look at their portfolio/13Fs, which is full of US companies with significant revenue exposure in China.

The Hang Seng and Hang Seng Tech indexes fell -0.53% and -2.13%, respectively, on volume that decreased -21.5% from yesterday, which is 114% of the 1-year average. 238 stocks advanced, while 230 declined. Main Board short turnover fell -32.82% from yesterday, which is 97% of the 1-year average, as 15% of turnover was short turnover (the renminbi is quoted USD/CNH, which confusingly means a lower price is renminbi appreciation versus the US dollar). The value factor “outperformed” (i.e. fell less than) the growth factor. The top-performing sectors were Real Estate, which gained +1.41%, Energy, which gained +1.01%, and Utilities, which gained +0.74%. Meanwhile, the worst-performing sectors were Communication Services, which fell -1.82%, Consumer Discretionary, which fell -1.76%, and Health Care, which fell -1.33%. The top-performing sub sectors were business/professional services, energy, and materials, while retailing, software, and media were the worst. Southbound Stock Connect volumes were moderate/high as mainland investors bought a net $273 million worth of Hong Kong-listed stocks and ETFs, including the Bank of China, which was a moderate net buy, and Li Auto, which was a small net buy. Meanwhile, Meituan and Kuaishou were net sells.

Shanghai, Shenzhen, and the STAR Board diverged to close +0.22%, +0.24%, and -1.01%, respectively, on volume that decreased -12.21% from yesterday, which is 114% of the 1-year average. 2,795 stocks advanced, while 2,036 declined. The value factor and small caps outpaced the growth factor and large caps. The top-performing sectors were Real Estate, which gained +2.47%, Energy, which gained +0.53%, and Consumer Staples, which gained +0.4%. Meanwhile, the worst-performing sectors were Utilities, which fell -1.08%, Consumer Discretionary, which fell -0.81%, and Technology, which fell -0.61%. The top-performing subsectors were aerospace, motorcycles, and fertilizers. Meanwhile, computer hardware, education, and land transportation were among the worst-performing. Northbound Stock Connect volumes were moderate as foreign investors sold a net -$296 million worth of Mainland stocks, including Kweichow Moutai, which was a large net buy, Haier, Inovance, Foxconn, BYD, and Gree. CNY and the Asia Dollar Index were off versus the US dollar. Treasury bonds rallied. Copper and steel gained.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.21 versus 7.20 yesterday
• CNY per EUR 7.76 versus 7.77 yesterday
• Yield on 10-Year Government Bond 2.29% versus 2.31% yesterday
• Yield on 10-Year China Development Bank Bond 2.38% versus 2.40% yesterday
• Copper Price +0.21%
• Steel Price +0.46%