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Mainland Rises Despite Mixed PMIs, Hong Kong Closed For Holiday

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Key News

Asian equities were little changed overnight on a slow news day and a market holiday in Hong Kong.

China released the official purchasing managers’ indexes (PMIs) for June overnight. The private survey, conducted by Caixin (IHS Markit) was also released, coming in ahead of the official figure for manufacturing. The official composite, on the other hand, was slightly lower from May. It is interesting to see such a difference between the official and private surveys. Manufacturing has been increasing over the past year with more exports of electric vehicles though a pullback is to be expected. The Caixin services PMI, expected on Wednesday, is expected to be lower than May, but the especially solid results during the 6.18 sales festival could lead to an upside surprise.

Mainland markets were mostly higher, except for the STAR Board, as the value factor outpaced the growth factor. Real estate was a top-performing sector within the MSCI China All Shares Index on positive policy support coming out of Beijing, the last and latest tier-1 city to lower purchase restrictions and instate specific policies to encourage home purchases.

The electric vehicle ecosystem was lower overnight though, after the close, Li, Xpeng, and NIO all reported June deliveries increased year-over-year by +47%, 24%, and +98%, respectively. Their ADRs are up this morning in US trading.

The PBOC is expected to sell government bonds this week, which led to a jump in yields overnight, to keep yields steady given the lack of US cuts. The central bank is said to have been mulling reforms to increase bond market liquidity, which may be discussed during the Third Plenum later this month.

Many investors are curious about whether China internet companies are still investing for growth given their high level of buybacks and dividends, unique among technology stocks. Our team visited Alibaba’s campus in Hangzhou last month, where the company has just opened a brand-new office complex with a capacity for 30,000 employees. The new complex is not even close to full capacity, indicating plans to do some serious hiring. The bottom line is that many of these companies have steady cash flows, and their stock prices are so low that massive buybacks do not strain their bank accounts. For Alibaba specifically, they will likely start funding buybacks with the proceeds from their convertible bond sale, taking advantage of a low interest rate due to their solid credit rating. We have been told that, despite the minimal spread with US Treasuries, the offering is in high demand thanks to the stock price and potential conversion.

Hong Kong’s markets were closed overnight.

Shanghai, Shenzhen, and the STAR Board diverged to close +0.92%, +0.77%, and -0.35%, respectively, on volume that decreased -6% from Friday. The top-performing sectors were Real Estate, which gained +4.90%, Energy, which gained +2.66%, and Utilities, which gained +2.13%. Meanwhile, the worst-performing sectors were Consumer Staples, which fell -0.57%, Industrials, which gained +0.13%, and Information Technology, which gained +0.18%.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

  • CNY per USD 7.27 versus 7.27 Friday
  • CNY per EUR  7.82 versus 7.78 Friday
  • Yield on 1-Day Government Bond 1.25% versus 1.30% Friday
  • Yield on 10-Year Government Bond 2.24% versus 2.21% Friday
  • Yield on 10-Year China Development Bank Bond 2.36% versus 2.32% Friday
  • Copper Price +0.70%
  • Steel Price +0.62%