Key News

Asian equities were a sea of red as overweight countries including Japan, South Korea, and Taiwan were whacked by more than -3% on regional semiconductor stocks’ declines.

Taiwan was hit with $3.1 billion worth of foreign selling, the largest foreign sell day in the country’s markets since 2020. Meanwhile, the US dollar was weaker versus Asian currencies, except for Tawain, where the foreign stock exodus weighed on the currency. These countries and stocks have performed well for quite some time, so there are not too many tears to cry.

India stood out for its relatively minor decline, though its market is largely supported by a large domestic retail investor. Meanwhile, Mainland China and Hong Kong were off only slightly, especially compared to US-listed China stocks.

Mainland China financial news was dominated by Nvidia’s near -10% fall yesterday, highlighting the global overweight to a small number of semiconductor and technology stocks, including the “Magnificent 7” stocks.

Alibaba added rival Tencent’s mobile payment WeChat Pay to its E-commerce platforms Tmall and Taobao, in another indication that China’s internet regulatory cycle is over.

Bloomberg is reporting that the massive RMB 5.4 trillion, 0.8% mortgage refinancing will be done in two steps to save households RMB 300 billion ($42 billion) while lessening the blow to banks’ income statements. The move would also free up household cash that could be used for consumption.

Several banks have cut their 2024 GDP forecasts to under 5%, though China’s government has yet to cut its official target.

The August Caixin Services PMI came in a touch light at 51.6 versus an expected 51.8 and July’s 52.1, though, as our trader friend Dave says, “market no care, you no care”.

Energy and materials were very weak globally and in Mainland China, where the sectors were down -2.10% and -1.66%, respectively, and in Hong Kong, where they were down -3.52% and -4.26%, as oil prices declined further. Hong Kong’s most heavily traded stocks by value were Tencent, which fell -1.43% despite buying 2.69 million shares today, energy giant CNOOC, which fell -6.35%, Meituan, which gained +0.25%, Alibaba, which was flat versus its US listing, which fell -1.28%, Xiaomi, which fell -2.71%, and Ping An, which fell -1.49%. It is worth noting that JD.com gained +0.86% versus its US listing, which fell -1.11% yesterday, Kuaishou gained +1.67%, NetEase fell -0.24% versus its US listing’s -3.03% decline yesterday, and Baidu fell -0.74% versus its US listing’s decline of -1.43%, Trip.com gained +1.25% versus its US listing’s gain of only +0.4%, and Bilibili gained +3.35% versus its US listing’s gain of only +1.60%. Why are global US investors so negative?

Electric vehicles (EVs) had a good day as Li Auto fell slightly by -0.54%, XPeng gained +1.55%, BYD fell -0.34%, and NIO gained +5.81%. The China Passenger Car Association reported preliminary August sales for new energy vehicles (NEVs) exceeded 1 million units in sales for the first time, up +42% year-over-year and 16% from July. Year-to-date, new energy vehicle (NEV) sales now total 6.00 million NEVs. Mainland China was off, though regionally outperformed.

The Shanghai did break the 2,800 level, while the Shenzhen approaches 1,500, though National Team ETFs had light volumes indicating a lack of support. Treasury bonds rallied in the Mainland while commodities were weak!

Have you seen the articles on the exodus out of an emerging market ETF versus the growth of the Emerging Markets ex China ETFs due to China’s “volatility”?  These articles are intellectually dishonest as they cherry pick a specific set of data while ignoring a lot of data. The articles utilize the shares outstanding of the very first Emerging Markets ETF, which is in secular decline for a variety of reasons, versus the growth in the largest Emergin Markets ex China ETF. Yes, in this comparison, there is a -30% decline in shares outstanding versus a growth of 1,200% for Emerging Markets ex China ETF (the Emerging Markets ex China ETF was only listed in 2017, and only in the last three years did shares grow). These articles ignore the fact that the four largest US-listed Emerging Markets ETFs, which have a full China weight, have grown 17%, 12%, 79%, and 11%, respectively, over the last three years. In fact, these four EM ETFs have respective assets of $78 billion, $77 billion, $9 billion, and $10 billion. The Emerging Markets ex China ETF referenced has assets of about $16 billion, by comparison. Shouldn’t the article be that $173 billion in total is invested in Emerging Markets ETFs that have full China weights versus only $16 billion in Emerging Markets ex China?

The Hang Seng and Hang Seng Tech indexes fell -1.10% and -0.39%, respectively, on volume that increased +22% from yesterday, which is 94% of the 1-year average. 114 stocks advanced while 348 stocks declined. Main Board short turnover increased +7% from yesterday, which is 94% of the 1-year average, as 13% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The growth factor and small caps fell less than the value factor and large caps. Consumer Discretionary was the only positive sector, gaining +0.09%. Meanwhile, Materials fell -4.25%, Energy fell -3.51%, and Technology fell -2.09%. The top-performing subsectors were autos and retail. Meanwhile, semiconductors were among the worst performing subsectors. Southbound Stock Connect volumes were light as Mainland investors sold a net -$474 million worth of Hong Kong-listed stocks and ETFs, including the Hong Kong Tracker ETF, Tencent, and the China Enterprise ETF. Meanwhile, Sinopec, China Construction Bank, and China Mobile were small net buys.

Shanghai, Shenzhen, and the STAR Board fell -0.67%, -0.59%, and -0.40%, on volume that decreased -3.73% from yesterday, which is 71% of the 1-year average. 1,295 stocks advanced while 3,590 stocks declined. The growth factor and small caps fell less than the value factor and large caps. Consumer Discretionary and Communication Services were the only positive sectors, gaining +0.36% and +0.14%, respectively, while Energy fell -2.09%, Materials fell -1.66%, and Real Estate fell -1.55%. The top-performing subsectors were education, fine chemicals, and highways. Meanwhile, precious metals, oil & gas, and energy equipment were among the worst-performing. Northbound Stock Connect volumes were light. CNY and the Asia Dollar Index gained. Treasury bonds rallied. Copper and steel fell.

Last Night's Performance

Last Night's Exchange Rates, Prices, & Yields

• CNY per USD 7.12 versus 7.12 yesterday
• CNY per EUR 7.87 versus 7.86 yesterday
• Yield on 10-Year Government Bond 2.13% versus 2.14% yesterday
• Yield on 10-Year China Development Bank Bond 2.22% versus 2.24% yesterday
• Copper Price -1.99%
• Steel Price -2.16%