Week in Review

• Asian equities were mixed this week as Thailand outperformed and Taiwan, Korea, and Japan underperformed on semiconductor weakness.
• Alibaba added rival Tencent’s mobile payment WeChat Pay to its E-commerce platforms Tmall and Taobao.
• The People’s Bank of China (PBOC), China’s central bank, said it will consider another cut to the reserve requirement ratio (RRR) when the US Fed cuts rates.
• China released official purchasing managers' indexes (PMIs) this week. Non-Manufacturing beat Manufacturing to show expansion while the latter indicated a contraction.

Key News

Asian equities were largely lower as Thailand and Taiwan outperformed while India was a rare underperformer.

Super Typhoon Yagi closed Hong Kong trading, providing a three day weekend to residents, though depriving us of the announcement of Alibaba’s inclusion in Southbound Stock Connect. It is now expected after the close on Monday. This will likely will be the last Typhoon closure for Hong Kong, as new Exchange rules eliminating the practice will go into effect on September 23rd.

10% of Tencent’s shares outstanding (923 million shares or $44B) are held by Mainland investors via Southbound Stock Connect. Obviously, that amount of money is not going into Alibaba stock on Tuesday morning, though my prediction is that Mainland investors could own $20 billion worth of its stock within a year.

Speaking of Alibaba, did anyone notice their daily buyback filing with the Hong Kong Stock Exchange? This morning, they filed that they spent $58 million to repurchase 5,380,400 shares, which is equal to 728,800 US-listed stocks (8 shares = 1 ADR). Alibaba’s US listing traded 8,461,044 shares yesterday on the NYSE, meaning the company’s buyback accounted for 8.6% of NYSE trading yesterday! Impressive! Tencent and Meituan have been filing daily buybacks as well, to their credit.

Mainland markets have been unable to shake their funk, despite continued chatter about the PBOC discussing cutting the bank reserve ratio cut once the Fed cuts. While investors do not appear to care, currency traders do, as the Renminbi (CNY), like the Asia Dollar Index, continues to rally versus the US dollar. Doesn’t that mean the value of the underlying companies listed on the Mainland has increased due to the change in FX? Yes, and historically that has led to a Hong Kong and Mainland China rallies, though no such luck thus far.

Securities brokers rallied on news that Gutai and Haitong will merge to become the largest Mainland broker.

Widely respected former PBOC Governor Yi Gang gave a speech in Shanghai noting China “…faces the problem of weak domestic demand, especially in consumption and investment.” His recommended remedy? “…the need for to adopt an active fiscal policy and prudent monetary policy to support growth.” I couldn’t agree more!

National Team-favored ETFs had below-average volumes, indicating little support overnight as Shanghai nears its February lows.

There was some chatter on Wednesday about a Wall Street strategist taking down their China overweight due to the potential for further US tariffs. Didn’t the people worried about US tariffs sell back in 2018? If you are worried about US tariffs, shouldn’t you be downgrading US retailers dependent on Chinese imports like Walmart, Home Depot, Costco and Amazon? Shouldn’t you downgrade US manufacturers, such as Ford and General Motors, that are dependent on imported Chinese inputs? Shouldn’t you be downgrading US multi-nationals with high China revenue like Tesla, Apple, Nvidia, Qualcomm, Boeing, Texas Instruments and Exxon Mobile? It is funny to me that US tariffs are only seen to be negative for Chinese stocks and not for US stocks! The reality is the downgrade is because the Chinese market has gone down since they went overweight! If you make a call and you are wrong, you eventually get fired or you need to change your call. You can’t be a bullish strategist in a bear market, nor can you be bearish strategist in a bull market. This just happened with a very well-known US strategist who was recently fired for being a bear! Of course, the US stock market fell right after he was fired. It reminds me of US wealth management firm firing their strategist for becoming a bear on US stocks in 1999. He was right, maybe a little early, but ultimately, he was right. We must ask ourselves, is the downgrade a sign of a top or bottom in Chinese stocks? No need to tell you my opinion!

The Hang Seng and Hang Seng Tech were closed.

Shanghai, Shenzhen and the STAR Board fell -0.81%, -1.60%, and -1.33%, respectively, on volume that increased +1.34% from yesterday, which is 68% of the 1-year average. 567 stocks advanced while 4,519 declined. The value factor and large caps “outperformed” (i.e. fell less than) the growth factor and small caps. Financials and Communication Services were the only positive sectors, gaining +0.55% and +0.01%, respectively, while Energy fell -1.67%, Technology fell -1.66%, and Healthcare fell -1.46%. The top-performing subsectors were precious metals, autos, and securities and brokerage products, while household products, daily chemicals, and leisure products were among the worst-performing. Northbound Stock Connect was closed. CNY and the Asia Dollar Index gained versus the US dollar. Treasury bonds were off. Copper gained while steel fell.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.08 versus 7.09 yesterday


• CNY per EUR 7.87 versus 7.88 yesterday


• Yield on 10-Year Government Bond 2.14% versus 2.13% yesterday


• Yield on 10-Year China Development Bank Bond 2.23% versus 2.23% yesterday


• Copper Price: 0.89%


• Steel Price: -1.32%