Key Catalysts for Today’s Market Move

• Beijing, Shanghai, and Shenzhen removed all home purchase restrictions. This is an unprecedented policy pivot, as the “housing is for living, not for speculating” mantra has been retired to stabilize and raise property prices, thereby restoring consumer confidence and raising domestic consumption.
• The purpose of Sunday’s State Council meeting, presided over by Premier Li Qiang, was to “…study and implement the spirit of General Secretary Xi Jinping’s important speech on the current economic situation and economic work…study and deploy the implementation of a package of incremental policies.” These policies sold be implemented in “timely manner” to “…complete the annual economic and social development goals and tasks”, which one could interpret as the 5% 2024 GDP target.
• The PBOC’s Monetary Policy Committee notes were released, acknowledging the economy faces “challenges such as insufficient effective demand and weak social expectations.”
  • Therefore, “it is necessary to accurately and effectively implement a prudent monetary policy… focus on domestic demand, boost confidence and promote a sustained recovery in the economy.”
  • The meeting concluded that “…it is necessary to increase the intensity of monetary policy regulation and improve the precision of monetary policy regulation.”
  • A heavy emphasis was placed on the real estate market policy support.  
  • Specific to the stock market, the PBOC will “…promote the implementation of newly established tools such as securities, funds and insurance companies’ swap facilities and stock repurchases”.
  • On domestic consumption, “the PBOC will “…increase financial support for large-scale equipment renewal and consumer goods trade-ins.”

Key News

Asian equities were lower, except for Mainland China and Hong Kong, as the former posted one of the all-time greatest days, while the latter had a good session, led by growth stocks and sectors.

Investors piled into Mainland China in advance of the market closing for the remainder of the week, in anticipation of further easing measures. Market action indicates for the first time that investors are removing money from historically overweight Asian countries (Japan, India, Taiwan, South Korea) to fund China allocations, which are very underweight.

What stood out about today in Mainland China:

• 5,088 stocks advanced while only four stocks declined.
  • Small-cap growth stocks soared, with the STAR Board rising an amazing 20%, though Shanghai and Shenzhen were up +8.06% and +10.93%, respectively.
  • Mainland China volumes were 326% of the 1-year average as volume increased +79% from Friday.
  • All sectors and subsectors were positive.
  • Northbound Stock Connect volumes were nearly 4X the average as foreign investors scrambled to allocate to Mainland equities.

What stood out about today in Hong Kong?

• Growth stocks/sectors outperformed, as Alibaba gained +7.32% on very high volumes of 250 million shares versus an average of 52 million shares.
  • Volume was 469% of the 1-year average.
  • All sectors were positive, while only two subsectors were negative.
  • Southbound Stock Connect volumes were 6X the average as Mainland investors scrambled to buy Hong Kong stocks prior to Connect closing until next Tuesday.
  • Mainland investors bought a very healthy $1.563 billion worth of Hong Kong-listed stocks, including Alibaba, which was a very large beneficiary. Meanwhile, Tencent and Meituan were large sales.
  • We are starting to see sell-side analysts raise internet companies' price targets as beneficiaries of domestic consumption policy support.

Over the weekend, the National Bureau of Statistics released the “official” PMI surveys, and Caixin and S&P released the “unofficial” private survey PMIs. The mixed release arguably confirms the recent economic policy pivot.

Remember that Hong Kong will be closed tomorrow, though it will reman open for the remainder of the week, while Mainland China will be closed until next Tuesday.

The Hang Seng and Hang Seng Tech indexes gained +2.43% and +6.70%, respectively, on volume that increased +13% from Friday, which is 469% of the 1-year average. 450 stocks advanced, while 60 declined. Main Board short turnover increased +0.31% from Friday, which is 343% of the 1-year average, as 12% 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 value and large caps. All sectors were positive, as Consumer Staples gained +7.2%, Consumer Discretionary gained +6.27%, and Real Estate gained +5.23%. The top-performing subsectors were diversified financials, semiconductors, and retail. Meanwhile, banks and utilities were the only negative subsectors. Southbound Stock Connect volumes were extraordinarily high, as Mainland investors bought a massive $1.56 billion worth of Hong Kong-listed stocks and ETFs, including Alibaba, which was a very large net buy, Hong Kong Exchanges were a large net buy, including Meituan and Tencent, which were large net sells.

Shanghai, Shenzhen, and the STAR Board gained +8.06%, +10.93%, and +17.88%, respectively, on volume that increased +79.05% from Friday, which is 326% of the 1-year average. 5,088 stocks advanced, while 4 declined (not a typo). The growth factor and small caps outperformed the value factor and large caps. All sectors were positive. The top-performing sectors were Information Technology, which gained +12.49%, Health Care, which gained +10.58%, and Communication Services, which gained +9.93%. All subsectors were positive, led higher by semiconductors, software, and biotech. Northbound Stock Connect volumes were extraordinarily high. CNY and the Asia Dollar Index were off slightly. Both copper and steel gained.

Last Night's Performance

Last Night's Exchange Rates, Prices, & Yields

• CNY per USD 7.01 versus 7.01 yesterday
• CNY per EUR 7.84 versus 7.83 yesterday 2.15% versus 2.25% yesterday
• Yield on 10-Year Government Bond 2.15% versus 2.25% yesterday
• Yield on 10-Year China Development Bank Bond 2.29% versus 2.26% yesterday
• Copper Price 0.27%
• Steel Price 4.58%