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Hong Kong Gains, Zeekr Lists In US, Week in Review

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Week in Review

  • Asian equities were mostly higher this week as Hong Kong outperformed.
  • The week started off with a data release from the Ministry of Culture and Tourism indicating that domestic travel for this year’s Labor Day holiday increased nearly +30% from 2019 pre-pandemic levels, powering travel stocks higher.
  • Online car dealership Autohome reported better-than-expected Q1 results on Wednesday, one of the first internet companies to report Q1.
  • China reported better-than-expected trade data on Thursday, as imports surged +8.4% year-over-year in April versus an expected +4.7%

Key News

Asian equities were mixed but generally higher overnight as Hong Kong, Taiwan, and Japan outperformed while the Philippines and Malaysia closed lower.

Hong Kong ripped higher on yesterday’s report that the 20% dividend tax paid by Mainland investors on Hong Kong stocks will be waived.  Value stocks led the market higher. Hong Kong’s most heavily traded stocks by value were China Construction Bank, which gained +6.82%, Hong Kong Exchanges, which gained +7.61% on being a key beneficiary of the increased trading due to the tax removal, Tencent, which gained +0.32%, China Mobile, which gained +4.82%, and energy giant CNOOC, which gained +2.91%. Mainland investors did not wait for confirmation of the new tax rules and plowed a healthy $832 million into Hong Kong-listed stocks and ETFs via Southbound Stock Connect. With Mainland bank deposits paying less than 2%, the waiver and subsequent flows from the Mainland would be another catalyst for foreign investors to return to Chinese equities, though trading desks' sentiment is picking up despite foreign investor skepticism. 

Mainland media noted that the 2-year, 3-year, and 5-year deposit rates decreased by 0.3% to 2.20%, 0.20% to 2.65%, and 0.25% to 2.65%, respectively.

Real estate was the top-performing sector in China, gaining +5.58% in Hong Kong and +4.67% in Mainland China. The strong moves come after Xi’an and Hangzhou both removed home purchase restrictions. However, Mainland media noted that Beijing, Shanghai, Guangzhou, and Shenzhen have not fully removed restrictions.

The Hang Seng Index punched through a short-term resistance level of 18,500, closing just below 19,000, while the Hang Seng Tech Index is sitting just below the short-term resistance level of 4,000.

Mainland China was mixed as growth stocks underperformed value stocks. Shanghai gained +0.01%, and Shenzhen fell -0.71%. Foreign investors sold a net -$832 million worth of Mainland stocks today, which also contributed to growth stocks' weakness.

One concern overnight may have been Biden’s tariff announcement, expected next Tuesday, on China-made electric vehicles (EVs) and solar panels. Yesterday, while in Washington D.C., I learned the tariffs are symbolic as EVs are already heavily tariffed. The announcement is aimed at swing state voters in Wisconsin, Michigan, and Pennsylvania. Ironically, Chinese automaker Geely listed its Zeekr EV brand on the New York Stock Exchange (NYSE) today after raising $441 million and selling 21 million shares. This is another sign that businesspeople are getting along just fine while the politicians are not. However, I think things have improved. Imagine if every US-China diplomatic visit required the presence of a businessperson with a strong interest in the other country. After all, who had a more successful China trip? Elon Musk or Antony Blinken? Maybe they should have gone together!

The Hang Seng and the Hang Seng Tech indexes gained +2.30% and +0.38%, respectively, on volume that increased +38.24% from yesterday, which is 172% of the 1-year average. 382 stocks advanced, while 109 stocks declined. Main Board short turnover increased +32.98% from yesterday, which is 121% of the 1-year average, as 12% of turnover was short turnover (remember Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). All factors were positive, though the value factor and large caps did outpace the growth factor and small caps. All sectors were positive. The top performers were Real Estate, which gained +5.57%, Financials, which gained +5.15%, and Energy, which gained +4.96%. The top-performing subsectors were diversified financials, energy, and telecom services. Meanwhile, auto was the only negative subsector. Southbound Stock Connect volumes were very high, at 2X the 1-year average, as Mainland investors bought a very healthy net $832 million worth of Hong Kong-listed stocks and ETFs, including the Bank of China, China Mobile, and China Construction Bank (CCB), which were large net buys. Meanwhile, CNOOC and Kuaishou were moderate net sells.

Shanghai, Shenzhen, and STAR Board were mixed +0.01%, -0.71%, and -1.5%, respectively, on volume that increased +1.31% from yesterday, which is 107% of the 1-year average. 1,318 stocks advanced, while 3,618 stocks declined. The value factor and large caps outpaced the growth factor and small caps. The top-performing sectors were Real Estate, which gained +4.67%, Financials, which gained +1.18%, and Utilities, which gained +1.18%. Meanwhile, Technology fell -1.37%, Health Care fell -0.7%, and Consumer Staples fell -0.51%. The top-performing subsectors were motorcycles, real estate, and precious metals. Meanwhile, computer hardware, education, and fine chemicals were among the worst-performing. Northbound Stock Connect volumes were moderate as foreign investors sold a healthy net -$872 million worth of Mainland stocks, including China Merchants Bank, Kweichow Moutai, and Gree were small net buys. Meanwhile, CATL was a moderate net sell along with LONGi Green Energy and Zijin Mining. CNY was off slightly versus the US dollar. The Treasury bond curve flattened. Copper gained while steel fell.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

  • CNY per USD 7.23 versus 7.22 yesterday
  • CNY per EUR 7.78 versus 7.78 yesterday
  • Yield on 1-Day Government Bond 1.43% versus 1.46% yesterday
  • Yield on 10-Year Government Bond 2.31% versus 2.32% yesterday
  • Yield on 10-Year China Development Bank Bond 2.42% versus 2.42% yesterday
  • Copper Price +0.61%
  • Steel Price -0.61%