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Investors Wait for US Fed Guidance

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Key News

Asian equities were mixed on light volumes before this morning’s US CPI print and this afternoon’s US Fed decision.

The US dollar was off versus most Asian currencies, less the Yen, as the US 10-Year Treasury closed below 4.4% at 4.38% overnight. Hong Kong underperformed the region on light volume and weak breadth as the Hang Seng Index closed just below the 18,000 level and is now at its 50-day moving average.  Yesterday’s chatter that the Biden Administration might further curtail Chinese companies' access to AI chips likely weighed on sentiment as Hong Kong semiconductor stocks underperformed today.

Yesterday might have been one of the first days US semiconductor stocks reacted to US government action as investors may have realized these companies have big revenue exposure to China that is threatened by such action.

Overnight, Wuxi Biologics gained +14.21%, and WuXi AppTec gained +8.45% in Hong Kong, as the Biosecure Act did not include provisions to restrict the use of the companies’ services. What is more disconcerting: US Congress is acting as a company's judge, jury, and executioner or the complete lack of Western media investigation of the issue?

This morning, the EU increased tariffs on Chinese imported electric vehicles with an additional 17.4% tariff for BYD, Geely 20%, and SAIC 38.1%. Domestic auto industries employ lots of people, which explains the action. And yes, Chinese auto companies have been beneficiaries of government subsidiaries. The Chinese government’s reaction will be interesting as France, Italy, and Spain pushed for the tariffs while Germany and Sweden tried to stall it. It's not surprising that inflation is staying high due to tariffs though how can these pro-environment governments reach their climate goals without Chinese clean tech? (Bloomberg News has a good article titled “China Exports Deflation but the US Isn’t Benefiting as Ties Weaken,” spoiler alert: Emerging Market countries are benefiting from cheap Chinese imports).  

Vehicle stocks underperformed as BYD fell -3.68% in Hong Kong and -0.71% in Mainland China, Li Auto fell -3.82%, Geely Auto fell -4.81%, and XPeng fell -5.3%. China's tepid inflation release was a likely factor on sentiment as it indicates domestic consumption continues to recover slowly, as May CPI was +0.3% versus expectations of +0.4% and May’s +0.3%. PPI was -1.4% versus expectations of -1.5% and April’s -2.5%. Mainland investors bought a healthy $879 million of Hong Kong stocks today, which brings the year-to-date total to $41.96 billion versus 2023’s $40.71 billion. Hong Kong’s most heavily traded stocks by value were Tencent, down -0.8%, Meituan, down -2.34% despite yesterday’s buyback announcement, CNOOC, up +2.35%, Wuxi Biologics up +14.21%, and Alibaba, down -0.91% as the company went ex-dividend. Shanghai & Shenzhen fared better than Hong Kong as Mainland indices sit at the low end of recent support. Again, it is a quiet night, so we shouldn’t read too far into market action as the big money waits for US interest rate guidance.

The Hang Seng and Hang Seng Tech fell -1.31% and -1.71%, respectively, on volume -17.66% from yesterday, which is 112% of the 1-year average. 154 stocks advanced, while 320 declined.  Main Board short turnover declined -16.33% from yesterday, which is 106% of the 1-year average, as 16% of turnover was short turnover (HK short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Large caps and value fell slightly less than small caps and growth. The top sectors were healthcare, up +1.57%, energy, up +1.05%, and utilities, up +0.56%, while real estate fell -2.74%, consumer discretionary fell -1.97%, and consumer staples fell -1.8%. The top sub-sectors were media, pharmaceuticals, and energy, while auto, semiconductor, and consumer services were the worst. Southbound Stock Connect volumes were moderate/light as mainland investors bought $879mm of HK stocks and ETFs.

Shanghai, Shenzhen, and STAR Board were mixed +0.31%, +0.58%, and -0.12%, respectively, on volume -1.87% from yesterday, which is 112% of the 1-year average. 3,870 stocks advanced, while 1,048 declined. Large caps and growth outpaced small caps and value. The top sectors were energy, up +2.72%, utilities up +0.71%, and communication services, up +0.61%. The top sub-sectors were coal, cultural media, and energy equipment, while airport, insurance, and marine/shipping were the worst. Northbound Stock Connect volumes were moderate as foreign investors were net sellers of Mainland stocks. CNY was off slightly versus the US dollar. Copper and steel were off.

Last Night's Performance

Last Night's Exchange Rates, Prices, & Yields

  • CNY per USD 7.25 versus 7.25 yesterday
  • CNY per EUR 7.79 versus 7.84 yesterday
  • Yield on 10-Year Government Bond 2.27% versus 2.28% yesterday
  • Yield on 10-Year China Development Bank Bond 2.39% versus 2.39% yesterday
  • Copper Price -0.50%
  • Steel Price -0.22%