Key News

Asian equities were largely lower on light volumes and news flow as India outperformed and Hong Kong underperformed.

Investor capital was sidelined in advance of central bankers' press conferences. The Politburo released an afternoon statement following their meeting, which included plenty of positive language. Investors gave the lack of exact policy measures a thumbs down, asking, “Where’s the beef?” (a reference to a 1980s Wendy’s commercial). One could argue we are starting to see the first fiscal policy focused on domestic consumption following last week’s auto and home appliances subsidies, which should raise the hope for 2nd half of policies. The release acknowledged the economic challenges, which was a positive sign.

Where is help needed?

• “Domestic effective demand is insufficient.”
• “The meeting emphasized the need to focus on boosting consumption to expand domestic demand… economic policies should shift towards benefiting people’s livelihoods and promoting consumption, increasing residents’ income...”.
• “New development concepts” will be emphasized in reference to technology, i.e., semiconductors, AI, cloud computing, etc.
• There was the usual emphasis on reforms and opening up.
• “New policies to promote the stable and healthy development of the real estate market should be implemented.”

How?

• Issuing special purpose bonds, as we saw on Electric vehicles/automobiles/home appliances, will be used.
• “We need to strengthen countercyclical adjustment, implement proactive fiscal and prudent monetary policies…”

The release had no effect on Hong Kong, which reversed yesterday’s gains on light volumes, poor breadth, and selling in the Hong Kong Tracker ETF from Mainland investors. Hong Kong’s most heavily traded stocks by value were Tencent, down -1.28%, Alibaba, down -0.46% following yesterday's Taobao and Tmall merchant policy, which should raise monetization, energy giant CNOOC fell -3.3%, AIA gained +0.29%, and Meituan fell -1.85%. Electric vehicle (EV) stocks were weak after BYD HK fell -1.85% after it cut prices on a premium line of EVs. Wuxi AppTech gained +3.83% on their financial outlook.

Hong Kong real estate was the worst sector, down -2.39%, after Hang Lung Properties fell -11.74% after it reported that net income fell by -56% year over year (YoY), though revenue did increase by +17% YoY. Ironically, real estate was the best sector in China, closing higher by +1.42%.

Treasury bonds were a strong signal of the Mainland sentiment as stocks fell, as they rallied with the 10 Year hitting a new 52-week high with the yield now at 2.14% (the dividend yield of the Hang Seng is 4.62% and the Shanghai Composite has a dividend yield of 2.95%). National Team ETFs had another volume spike in the afternoon, indicating some support, though it is hard to say for certain. Northbound Stock Connect data will be further curtailed in mid-August, which is a shame. I understand stopping real-time intra-day data as local investors mimic foreign investors on buy and sell days. Eliminating end-of-day data on buys/sells isn’t the end of the world, but it provides further opaqueness ammunition for the bears.  

The Hang Seng and Hang Seng Tech fell by -1.37% and -1.52%, respectively, on volume up +6.19% from yesterday, which is 87% of the 1-year average. 78 stocks advanced, while 413 declined. Main Board short turnover increased by +22.72% from yesterday, which is 83% of the 1-year average, as 16% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Large capitalization and growth stocks “outperformed”/fell less than small capitalization and value stocks. All sectors were negative, with technology down -2.75%, energy down -2.59%, and real estate down -2.39%. All sub-sectors were negative, with energy, technical hardware, and automobiles ranking the worst. Southbound Stock Connect volumes were light as Mainland investors sold -$43 million of Hong Kong stocks and ETFs, with Xiaomi and DZUG small net buys, while the Hong Kong Tracker ETF was a large net sell.

Shanghai, Shenzhen, and STAR Board were mixed -0.43%, -0.17%, and +0.34%, respectively, on volume up +2.27 from yesterday, which is 74% of the 1-year average. 3,044 stocks advanced, while 1,799 declined. Small capitalization and growth stocks “outperformed”/fell less than large capitalization and value stocks. Real estate was the only positive sector as it gained +1.42%, while energy fell -2.34%, consumer discretionary fell -1.62%, and utilities fell -1.24%. The top sub-sectors were education, forest, and real estate, while oil/gas, household products, and automobiles were the worst. Northbound Stock Connect volumes were moderate as foreign investors were net sellers of Mainland stocks, with Wuxi AppTec a moderate net buy, BYD and Cypc small net buys, while Kweichow Moutai was a moderate net sell, Wanhua was a moderate/small net sell, and FYG was a small net sell. Treasury bonds rallied. CNY and the Asia dollar index rallied versus the US dollar. Copper and steel fell.

Last Night's Performance

Last Night's Exchange Rates, Prices, & Yields

• CNY per USD 7.25 versus 7.26 yesterday
• CNY per EUR 7.85 versus 7.86 yesterday
• Yield on 10-Year Government Bond 2.14% versus 2.16% yesterday
• Yield on 10-Year China Development Bank Bond 2.22% versus 2.23% yesterday
• Copper Price: -1.17%
• Steel Price: -0.45%