Key News

Asian equities were higher except for Mainland China on light volumes and little news as the US dollar strengthened overnight.

Hong Kong grinded higher, led by volume leader Alibaba, following an interesting day in US-listed China ADRs yesterday, which opened higher, started sliding mid-morning, and then rebounded strongly. A sell-side analyst noted Alibaba has several “technical catalysts” including Southbound Stock Connect inclusion, recent cooperation with Tencent’s WeChat Pay, and their new E-Commerce commission fee. The Alibaba-Tencent cooperation that goes into effect today was a Mainland news item.

Another investment bank reiterated its emerging market overweight and underweight, including China internet stocks as a top pick. Like us, they have noticed that not all Chinese companies are growing revenue and EPS, but the internet stocks are.

After the close, Bloomberg News reported that plans to allow the refinancing of $5.3 trillion Chinese mortgages could occur by month end, which is sooner than anticipated. The massive refinancing would free cash for households, with some of that going into consumption, though the move will weigh on banks’ profitability.

Interestingly, a commodity researcher noted the pickup in commodity prices, especially in China, after the recent price decline. As I said on Twitter yesterday (@ahern_brendan), Chinese oil import volumes have increased, though many incorrectly look at the value of oil import prices, which declined due to the fall in oil prices. Chinese demand remains robust, though I’ll speak to our partners who are commodity experts at Mount Lucas Management (@DaveAspell) for further clarity and insight. Investor positioning in both China and commodities are likely at or near all-time lows, making them ripe for a rip, in my opinion. That is some good news, right?

Hong Kong’s most heavily traded stocks by value were Alibaba, which gained +2.15% on HKD 3.5128 billion ($450 million) worth of net buying via Southbound Stock Connect, Meituan, which gained +2.43% after buying back 4 million shares today, Tencent, which gained +0.65% after buying back 2.68 million shares today, AIA, which gained +3.67%, and energy giant CNOOC, which gained +1%. Do you notice a theme here? Alibaba bought back 711,300 of their US-listed stocks yesterday, accounting for 6.2% of the ADR volume. Internet names were largely higher, though the electric vehicle ecosystem and autos were off as Brilliance China Auto’s Chairman resigned, sending the stock lower by -12.2%.

Mainland China remains mired in its funk as mega-caps stocks held up much better than mid and small caps, except for Kweichow Moutai, which fell -3.26%, and peer Wuliangye Yibin, which fell -2.28% on chatter of light sales heading into the big Chinese holiday. The National Team‘s favored ETFs had light volumes. The Mainland stock market remains a thumbs down on the government’s stimulus policies as consumer confidence remains in the doldrums. Hopefully, the mortgage refinancing will release some animal spirits!

The Hang Seng and Hang Seng Tech gained +0.77% and +0.70% on volume that declined -13.33% from yesterday, which is 89% of the 1-year average. 294 stocks advanced, while 183 stocks declined. Main Board short turnover declined -17.72% from yesterday, which is 72% of the 1-year average, as 14% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The value factor and large caps outperformed the growth factor and small caps. The top-performing sectors were Materials, which gained +1.73%, Consumer Discretionary, which gained +1.10%, and Financials, which gained +0.78%. Meanwhile, Consumer Staples fell -0.85%. The top-performing subsectors were retail, materials, and insurance. Meanwhile, food & beverage, household & personal products, and tobacco were among the worst-performing subsectors. Southbound Stock Connect volumes were light as Mainland investors bought a net $394 million worth of Hong Kong-listed stocks and ETFs, including Alibaba, which was a large net buy, CNOOC and Tencent, which were small net buys, and China Mobile, which was a small net sell.

Shanghai, Shenzhen, and the STAR Board fell -0.17%, -0.48%, and -0.82%, respectively, on volume that increased +3.18% from yesterday, which is 66% of the 1-year average. 2,315 stocks advanced, while 2,491 declined. The value factor and large caps “outperformed” (i.e. fell less than) the growth factor and small caps. The top-performing sectors were Energy, which gained +1.09%, Financials, which gained +0.25%, and Utilities, which gained +0.2%. Meanwhile, Consumer Staples fell -2.69%, Communication Services fell -1.63%, and Health Care fell -1.61%. The top-performing subsectors were water, highway, and marine and shipping industry. Meanwhile, liquors, chemicals, and biotechnology were among the worst-performing subsectors. Northbound Stock Connect volumes were light. CNY and the Asia Dollar Index fell versus the US dollar. Treasury bonds fell. Copper and steel gained.

Last Night's Performance

Last Night's Exchange Rates, Prices, & Yields

• CNY per USD 7.12 versus 7.11 yesterday
• CNY per EUR 7.84 versus 7.85 yesterday
• Yield on 10-Year China Government Bond 2.10% versus 2.10% yesterday
• Yield on 10-Year China Development Bank Bond 2.19% versus 2.20% yesterday
• Copper Price +0.95%
• Steel Price +2.23%