Reuters’ RMB 10 Trillion Stimulus Article Lifts US-Listed China Stocks Pre-market
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Key News
Asian equities were mixed overnight despite another strong US dollar move against regional currencies, as Mainland China, Taiwan, and the Philippines underperformed.
The most important news item occurred after the market close as Reuters reported the National People's Congress (NPC) will approve RMB 10 trillion ($1.4 trillion) worth of fiscal stimulus, which is equivalent to 8% of GDP, via special bond issuance, sending US-listed China stocks higher pre-market. The bond issuance would:
- Be spread out over three years with RMB 6 trillion of “the proceeds primarily being used to help local governments address off-the-books debt risk”
- “4 trillion worth of special-purpose bonds for idle land and property purchases over the next five years”
- A separate RMB 1 trillion “as a consumption boost including trade-in and renewal of consumer goods”
- “Another trillion to bolster banks’ balance sheets"
The Reuters article is based upon “two sources with knowledge of the matter,” though they cautioned that “the plans are not finalized and remain subject to changes.” Prior to the Reuters release, Mainland media source Yicai wrote today about the Ministry of Finance's plans to address “local government hidden debts” with provinces coming clean in order to garner access to funds. Citing the October 12th press conference of Finance Minister Lan Fo’an, who stated the government “is planning a one-off increase in the local government debt ceiling to support the replacement of hidden debt through the issuance of more government bonds,” which requires raising the debt ceiling, which requires the NPC.
Ultimately, we won’t know definitively until November 8th when the NPC concludes. The rally is most inconvenient for foreign investors and strategists who remain on the sidelines, underweight China due to the US election. They likely have to reconsider due to Mainland China and Hong Kong’s outperformance versus US equities in recent months. Emerging markets and Asia ex Japan are at least double digits in terms of outperformance, +10%, based on the Hang Seng or Shanghai, but more than 25% if using the Hang Seng Tech or Shenzhen since the end of August. One investor group that continues to benefit have been Mainland investors, who bought $869 million worth of Hong Kong-listed stocks today via Southbound Stock Connect.
It was fairly quiet overnight as Hong Kong growth stocks outperformed, led by internet stocks and electric vehicle (EVs) and automobile stocks on talk that the government will purchase more EVs to offset limiting exports to Europe. Hong Kong did not have a great night, other than these pockets of outperformance, as decliners outpaced advancers, though volume did pick up.
Hong Kong’s most heavily traded stocks by value were Meituan, which gained +2.21%, Tencent, which gained +0.29%, Alibaba, which gained +0.93%, GCL Technology, down -7.02%, HSBC, up +3.69% after strong financial results, JD.com, up +2.72%, Kuaishou, flat at 0.0%, BYD, up +0.81%, Li Auto, down -0.71%, Trip.com, up +3.03%, Baidu, up +2.66%, Bilibili, up +2.87%, XPeng, up +2.57%, and NetEase, up +2.26%. Mainland investors bought a healthy $869 million of Hong Kong stocks via Southbound Stock Connect with Alibaba a large net buy, Meituan a moderate net buy, and Tencent a small net buy. Mainland China gave up morning gains to close lower. Several Mainland foreign favorites and mega-capitalization stocks were off such as Kweichow Moutai, down -2.13%, Wuliangye, down -2.06%, PetroChina, down -2.03% post financial results, CATL, down -1.74%, Sungrow, down -3.46%, and Longi, down -4.18%. It is impossible to know if foreign investors were sellers since the data is no longer available, though it is feasible.
The Conference Board’s Leading Economic Index (LEI) decreased in September by -0.2% following August’s fall of -0.2%. The Coincident Economic Index (CEI) increased by +0.6% in September, following an increase of +0.7% in August. The LEI is a predictive tool that anticipates—or “leads”—turning points in the business cycle by around five months. The CEI reflects current economic conditions and is highly correlated with real GDP. While a “persistently depressed consumer confidence weighed heavily on the Index’, there is evidence that early policy adjustments are benefitting targeted industries such as automobile/EV/hybrid based on strong September sales.
September retail sales didn’t garner much attention despite a reported 3.2% increase, which beat economist expectations of 2.5%, versus August’s 2.1% increase. As of October 13th, the daily average transaction area of housing in thirty major cities was +29% month over month, though off 30% year over year. With stimulus policies just being rolled out a month ago, at this juncture, we are simply looking for month-over-month increases/improvements. Is everything unicorns and rainbows? Of course not, but the captain has told the wheelhouse to turn the supper tanker. It doesn’t move on a dime, but the process has started.
The Hang Seng and Hang Seng Tech indexes gained +0.49% and +1.09%, respectively, on volume up +13.15% from yesterday, which is 126% of the 1-year average. 150 stocks advanced, while 335 declined. Main Board short turnover increased by +17.16% from yesterday, which is 93% 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 large capitalization stocks outperformed value and small capitalization stocks. The top sectors were consumer discretionary, up +1.49%, communication services, up +0.6%, and technology, up +0.53%, while real estate fell -1.79%, consumer staples fell -1.6%, and energy fell -1.55%. The top sub-sectors were retailing, technical hardware, and automobiles, while food/beverage, energy, and materials were the worst. Southbound Stock Connect volumes were high at almost 1.5X the average as Mainland investors bought a healthy $869 million of Hong Kong stocks and ETFs, with Alibaba a large net buy, Meituan a moderate/large net buy, Tencent and GCL Tech small net buys, while China Mobile and CNOOC were a small net sells.
Shanghai, Shenzhen, and the STAR Board fell -1.08%, -1.48%, -1.13%, respectively, on volume up +10.63% from yesterday, which is 199% of the 1-year average. 850 stocks advanced, while 4,211 declined. Value and large capitalization stocks fell less than growth and small capitalization stocks. All sectors were negative, led lower by real estate, down -2.34%, healthcare, down -2.08%, and consumer staples, down -2.05%. The top sub-sectors were computer hardware, motorcycles, and education, while steel, office supplies, and biotech were the worst. Northbound Stock Connect volumes were high, 2X the average. CNY and the Asia dollar index fell versus the US dollar. Treasury bonds were flat. Copper and steel fell.
Last Night's Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.13 versus 7.13 yesterday
- CNY per EUR 7.72 versus 7.71 yesterday
- Yield on 10-Year Government Bond 2.16% versus 2.16% yesterday
- Yield on 10-Year China Development Bank Bond 2.24% versus 2.24% yesterday
- Copper Price -0.16%
- Steel Price -0.09%