Sector Rotation Goes Global As Semiconductor Stocks Fall
6 Min. Read Time
Key News
Asian equities were higher except for Taiwan, South Korea, and semiconductor stocks regionally on potential US chip export restrictions and weak guidance from ASML. However, the rotation from the Magnificent 7/US mega-cap technology stocks would arguably hit their global equivalents.
According to Google, India was closed for Muharram, the first month of the Islamic calendar, and Pakistan closed for Ashura, the tenth day of Muharram.
Markets were quiet overall in advance of tomorrow night’s Third Plenum release. There was very little market-moving news as June youth unemployment for 16 to 24-year-olds, excluding students, improved but remained high at 13.2% versus 14.2% in May. The IMF raised its 2024 GDP forecast to 5% from 4.8% due to “resurgent domestic consumption propelling the positive upside in the first quarter” and “a rebound in private consumption and strong exports in the first quarter.”
There was some rotation today as healthcare was the best performer in Hong Kong, gaining +2.41%, and Mainland China, gaining +2.24%, on little news, which was less a sell-side upgrade of Hong Kong online healthcare companies. Alibaba Health gained +8.57%, Ping An Healthcare gained +9.62%, and JD Health gained +3.83%. However, would you believe these companies are consumer staples due to being “drug retailers” according to the Global Industry Classification (GIC)?
Sticking with the sector rotation idea, consumer staples outperformed in both Hong Kong and Mainland China, gaining +2.08% and +2.35% on chatter that a new consumption tax won’t include liquor stocks. Kweichow Moutai gained +1.72% on the news as well. Investors rotated out of energy, the worst performer in both Hong Kong and Mainland China, down -3.97% and -2.14%, with materials not far behind, lower in Hong Kong and Mainland China by -3.66% and -1.38%. Real estate was strong as it gained +1.39% in Hong Kong and +2.21% in Mainland China, with my expectations the space receive further policy support post-Third Plenum.
Hong Kong’s most heavily traded were Tencent, down -1.64% on no news though they can’t buy back stock due to their coming Q2 release, energy giant CNOOC, down -5.16%, Alibaba, up +1.06%, Meituan, up +1.36%, and China Mobile, down -2.34%. Semiconductor stocks in both markets were among the worst sub-sectors. Internet names were largely higher as JD.com gained +2.11%, Kuaishou gained +0.97%, Baidu gained +0.55%, and NeEase gained +1.39%, though Trip.com was down -0.8%. Mainland investors bought Tencent via Southbound Stock Connect, though sold the Hong Kong Tracker ETF on a rare net sell day. Mega-cap financial stocks had strong volumes in National Team ETFs, indicating market intervention today, which allowed the CSI 300 to be positive, though both Shanghai and Shenzhen Composites were down. The weak dollar overnight helped CNY-denominated assets.
Tokyo Electron was down by 7.46% on reports that the Biden Administration would expand chip export restrictions to allies. As of 3/31/2024, Tokyo Electron did $5.63 billion/44% of its revenue in China versus $1.16 billion/9.2% in the US. If you force people to choose, you might not like the outcome.
“China is the greatest threat to the US” is a statement I find perplexing with conflicts going on in Europe and the Middle East. Besides the strong trade, economic, and US multi-national revenue exposure, can you name an armed conflict in Asia in the last forty years? I suppose the politicians and media need a bogeyman to justify their existence and put eyeballs on the screen.
The Hang Seng and Hang Seng Tech gained +0.06% and +0.5%, respectively, on volume +11.37% from yesterday, which is 102% of the 1-year average. 259 stocks advanced, while 217 declined. Main Board short turnover declined by -12.84% from yesterday, which is 93% 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). Growth and small caps outperformed value and large caps. The top sectors were healthcare +2.42%, staples +2.36%, and real estate +1.41%, while energy -3.95%, materials -3.65%, and utilities -2.3% were the worst. The top sub-sectors were pharmaceuticals, food/beverage, and consumer durables/appeal, while energy, semiconductor, and telecom were the worst. Southbound Stock Connect volumes were moderate as Mainland investors sold -$40 million of Hong Kong stocks and ETFs, with Tencent a moderate net buy and the Hong Kong Tracker ETF a moderate net sell.
Shanghai, Shenzhen, and STAR Board fell -0.45%, -0.78%, and -0.42%, respectively, on volume +5.45% from yesterday, which is 83% of the 1-year average. 1,591 stocks advanced, while 3,278 declined. Growth, value, and small and large-cap stocks all performed similarly. The top sectors were healthcare +2.31%, real estate +2.28%, and staples 2.14%, while energy -2.08%, technology -1.64%, and materials -1.32% were the worst. The top sub-sectors were insurance, liquor, and healthcare, while electronic components, motorcycles, and oil/gas were the worst. Northbound Stock Connect volumes were moderate as foreign investors were net sellers of Mainland stocks. Treasury bonds rallied. CNY and the Asia dollar index gained versus the US Dollar. Copper and steel fell.
Last Night's Performance
| Country/Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | 0.1% |
| Hang Seng Tech | HSTECH Index | 0.5% |
| Hong Kong Turnover | HKTurn Index | 11.4% |
| HK Short Sale Turnover | HKSST Index | -12.8% |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | -40.5 |
| China (Shanghai) | SHCOMP Index | -0.5% |
| China (Shenzhen) | SZCOMP Index | -0.8% |
| China (STAR Board) | Star50 Index | -0.4% |
| Mainland Turnover | .chturn Index | 5.5% |
| Nouthbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | Not Available |
| Jing Daily China Global Luxury Index | CHINALUX Index | 0.6% |
| Japan | NKY Index | -0.4% |
| India | SENSEX Index | 0.1% |
| Indonesia | JCI Index | 0% |
| Malaysia | FBMKLCI Index | 0.5% |
| Pakistan | KSE100 Index | 1.4% |
| Philippines | PCOMP Index | 0.3% |
| South Korea | KOSPI Index | -0.8% |
| Taiwan | TWSE Index | -0.9% |
| Thailand | SET Index | -0.1% |
| Singapore | STI Index | 0% |
| Australia | AS51 Index | 0.7% |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 154 | -0.2 |
| Communication Services | 9 | -1.1 |
| Consumer Discretionary | 29 | 1 |
| Consumer Staples | 13 | 2.4 |
| Energy | 7 | -4 |
| Financials | 24 | 0 |
| Health Care | 14 | 2.4 |
| Industrials | 18 | -1 |
| Information Technology | 11 | -0.2 |
| Materials | 11 | -3.7 |
| Real Estate | 6 | 1.4 |
| Utilities | 12 | -2.3 |
| China Listed | 487 | 0.1 |
| Communication Services | 13 | 0.1 |
| Consumer Discretionary | 41 | -0.3 |
| Consumer Staples | 32 | 2.1 |
| Energy | 17 | -2.1 |
| Financials | 68 | 1.1 |
| Health Care | 45 | 2.3 |
| Industrials | 74 | 0 |
| Information Technology | 93 | -1.7 |
| Materials | 80 | -1.4 |
| Real Estate | 7 | 2.2 |
| Utilities | 17 | -1.2 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | -1.6 |
| Alibaba HK | 9988 HK Equity | 1.1 |
| JD.com HK | 9618 HK Equity | 2.1 |
| NetEase HK | 9999 HK Equity | 1.4 |
| Yum China HK | 9987 HK Equity | -0.8 |
| Baozun HK | 9991 HK Equity | 0.1 |
| Baidu HK | 9888 HK Equity | 0.5 |
| Autohome HK | 2518 HK Equity | 2 |
| Bilibili HK | 9626 HK Equity | -1.3 |
| Trip.com HK | 9961 HK Equity | -0.8 |
| EDU HK | 9901 HK Equity | 0.1 |
| Xpeng HK | 9868 HK Equity | 3.1 |
| Weibo HK | 9898 HK Equity | 0.4 |
| Li Auto HK | 2015 HK Equity | 2.4 |
| Nio Auto HK | 9866 HK Equity | 3.7 |
| Zhihu HK | 2390 HK Equity | 3.1 |
| KE HK | 2423 HK Equity | -0.1 |
| Tencent Music Entertainment HK | 1698 HK Equity | 1.7 |
| Meituan HK | 3690 HK Equity | 1.4 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| Tencent Holdings Ltd | -1.6 |
| CNOOC Ltd | -5.2 |
| Alibaba Group Holding Ltd | 1.1 |
| Meituan | 1.4 |
| China Mobile | -2.3 |
| PetroChina Ltd | -5.8 |
| Ping Insurance Group | 0.6 |
| China Construction Bank Corporation | -0.2 |
| Zijin Mining Group | -4.6 |
| Xiaomi Corp | 2.7 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| Kweichow Moutai Ltd | 1.7 |
| Unisplendour Corp Ltd | 1.9 |
| Seres Group Ltd | -2.3 |
| Zhongji Innolight Ltd | -4.3 |
| Zijin Mining Group | -3.9 |
| Chongqing Changan Automobiles | -1.6 |
| Anhui Jianghuai Automobile Group | 4.5 |
| BAIC BluePark New Energy Technology | 0.4 |
| Sunwoda Electronic | -1.2 |
| Foxconn Industrial Internet Co | -5.5 |
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.25 versus 7.26 yesterday
- CNY per EUR 7.93 versus 7.91 yesterday
- Yield on 10-Year Government Bond 2.26% versus 2.26% yesterday
- Yield on 10-Year China Development Bank Bond 2.33% versus 2.33% yesterday
- Copper Price -0.97%
- Steel Price -0.56%
