Week in Review

• Asian equities were mostly higher this week as the US Fed cut interest rates by 0.50% and Hong Kong outperformed while Mainland China underperformed.
• Appliance giant Midea listed its shares publicly for the first time on the Hong Kong Stock Exchange on Tuesday, representing the first IPO of a Mainland-listed company under the new listing rules and, at over $4 billion, the second-largest IPO globally in 2024.
• Travel data for the Mainland’s four-day weekend for the Mid-Autumn Festival was strong, with 107 million domestic trips, an increase of +6.3% versus 2019 data, according to a Wednesday release.
• China released industrial production and retail sales data on Monday, as both came in slightly below estimates, highlighting the need for further fiscal stimulus.

Key News

Asian equities were largely higher on high volumes driven by FTSE Russell and S&P index rebalances and triple witching in the US, led higher by Japan, Hong Kong, and India outperforming as the Bank of Japan didn’t raise interest rates overnight, curtailing the Yen’s recent appreciation.

Hong Kong had a strong day on high volume. All sectors were positive, as advancers outnumbered decliners by 4 to 1. Hong Kong’s most heavily traded stocks by value were Tencent, which fell --0.05 %; Alibaba, which gained +1.75%; Meituan, which gained +1.57%; AIA, which gained +3.19%; and BYD, which gained +0.08%.

Internet stocks were higher, including JD.com, which gained +0.72%; Trip.com, which gained +2.03%; Baidu +0.18%; and NetEase, which gained +1.31%. However, Kuaishou fell -1.54% as private equity investors sold 91.7 million shares at a discount of 3.7%. Alibaba had $586 million worth of net buying via Southbound Stock Connect, bringing its total net buy from Mainland investors to $3.1 billion since being added to Southbound Stock Connect. Yesterday, the company bought 454,252 US ADRs, with its buyback accounting for 2.4% of its US ADR volume. Tencent bought back 2.58 million shares today, as well.

There was chatter that China and the EU are working on electric vehicle (EV) tariffs. This drove BYD higher by +0.08%. Li Auto gained +2.77%, Xpeng gained +6.88%, and NIO gained +2.44% on a new car launch to compete with Tesla. Yesterday’s Boeing purchases might have been a not-so-subtle reminder to the EU and Airbus that two can tango at the tariff game.

Why am I just now mentioning China keeping the 1 and 5-Year Loan Prime Rates (LPRs) unchanged at 3.35% and 3.85%, respectively? As our trader buddy, Dave, says, “market no care, you no care,” and the offshore market “no care.” Yes, no economist predicted it, and market expectations were for no change, but I don’t think lower rates drive investor interest, as China’s interest rates have been low for a long time as demand, not supply, is the Mainland’s issue. Investor interest in offshore (including Hong Kong) growth stocks is driven by their buybacks and Southbound Connect buying. Sure, offshore growth stocks’ valuations are low, but that’s been the case for a long time.

The onshore market (Shanghai & Shenzhen) did care, though, as Mainland investors assumed the Fed’s 50 basis point cut gave the banks (the PBOC) room to cut the 5-year LPR by 20 basis points, which would lower mortgage rates. The 5-year LPR has been lowered by 100 basis points, which was implemented in nine reductions over the last five years. Investors gave the lack of move a giant thumbs down, which required a large afternoon intervention by the National Team, as evidenced by their favorite ETFs’ volumes spiking significantly. This is despite Beijing’s Municipal Party Committee announcing thirteen real estate policy adjustments to spur demand. There is chatter that Shanghai will do the same.

Today’s downdraft was mitigated by an advance in the Renminbi (CNY) versus the US dollar. I would suspect that the Mainland might have seen light selling due to the FTSE and S&P index rebalances as well. Yes, India is larger than China in MSCI indices, despite China’s GDP of $18.53 trillion and India’s $3.93 trillion, according to the IMF, but India is now larger than South Korea and Taiwan combined! Retail Indian investors love of stock options is having a profound effect on the market and valuations, in my opinion.

The Hang Seng and Hang Seng Tech indexes gained +1.36% and +1.43%, respectively, on volume that increased +18.85% from yesterday, which is 170% of the 1-year average. 388 stocks advanced, while 99 stocks declined. Main Board short turnover increased by +39.97% from yesterday, which is 185% of the 1-year average, as 18% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Growth and small caps outperformed the value factor and large caps. All sectors were positive. The top-performing sectors were Healthcare, which gained +3.78%; Materials, which gained +2.84%; and Real Estate, which gained +2.66%. All subsectors were positive, too. The top performers were media, pharmaceuticals, and basic materials. Southbound Stock Connect volumes were moderate/high as Mainland investors bought a net $436 million worth of Hong Kong-listed stocks and ETFs, including Alibaba, a large net buy, Wuxi Biologics, a small net buy, and Tencent and Meituan, which were moderate net sells.

Shanghai, Shenzhen, and the STAR Board diverged to close +0.03%, -0.16%, and -0.48%, respectively, on volume that decreased -8.5% from yesterday, which is 73% of the 1-year average. 1,354 stocks advanced, while 3,548 stocks declined. The value factor and large caps outperformed the growth factor and small caps. The top-performing sectors were Real Estate, which gained +1.67%, Energy, which gained +1.42%, and Financials, which gained +0.64%. Meanwhile, Industrials fell -0.08% and Healthcare fell -0.83%. The top-performing subsectors were precious metals, marine industry and shipping, and telecom. Meanwhile, daily chemicals, motorcycles, and pharmaceuticals were among the worst-performing subsectors. Northbound Stock Connect volumes were moderate.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.05 versus 7.07 yesterday
• CNY per EUR 7.87 versus 7.86 yesterday
• Yield on 10-Year Government Bond 2.04% versus 2.05% yesterday
• Yield on 10-Year China Development Bank Bond 2.13% versus 2.12% yesterday
• Copper Price +1.18%
• Steel Price +0.63%