Week in Review

• Asian equities were mixed but mostly lower this week as Pakistan, India, and Japan outperformed while Mainland China, India, and the Philippines underperformed.

• Ministry of Finance Deputy Minister Liao Min made very constructive comments Monday concerning the upcoming National People’s Congress (NPC) meeting that starts on November 4^th in Beijing, stating the government intends to "stimulate consumption to increase effective demand."
• China real estate stocks had a good week on improving sales transaction data.
• September retail sales, released on Tuesday, increased by 3.2% versus August's 2.1% increase, which beat economist expectations of 2.5%.

Key News

Asian equities were lower overnight though Hong Kong and Malaysia managed small gains as the US dollar strengthened while Apple’s financial results weighed on regional technology plays.

India was closed for Diwali, and the Philippines was closed for All Saint’s Day, which is also known as All Hallows’ Day, and celebrates all the saints of the Church. It was an interesting day as Hong Kong managed a gain while Mainland China was off.

Real estate rose in Hong Kong, where it gained +3.07%, and Mainland China, where it gained +1.50% after the China Index Academy released that “the average price of newly built houses in 100 cities in China was 16,532 yuan per square meter, up 0.29% month-over-month and 2.08% year-on-year” according to Sohu.com. 44 cities reported a month-on-month price increase in October from September’s 27 cities reporting an increase. This follows data from the Ministry of Housing and Urban-Rural Development stating that in October “the total transaction volume of new commercial housing and second-hand housing increased by 3.9% year-on-year, marking the first increase after eight consecutive months of decline in February this year.” One could argue the government’s efforts to stabilize housing prices are working though this will be a long-run issue.

Apple’s weak results weighed on its suppliers, including Mainland-listed Foxconn, which fell -2.35%, Hong Kong-listed Sunny Optical, which fell -3.65%, and AAC Technologies, which fell -3.02%, as Technology was the worst-performing sector in Mainland China, where it fell -3.24%. Growth stocks, sectors, and subsectors were particularly weak in A-shares, as subsectors including software, semiconductors, autos, and electronic equipment underperformed.

However, technology names managed a small gain in Hong Kong, up +0.45%. Hong Kong-listed growth stocks had a good session,  semis with SMIC -4.81% and Li Auto -9.59% versus its ADR falling -13.58% after its financial results yesterday.

After the close, October auto sales were released. BYD delivered 502,657 new energy vehicles (NEVs), which include both hybrids & electric vehicles, which is +66.53% year-over-year (YoY) and +19.84% month-over-month (MoM). NIO delivered 16,657 NEVs, which is down -18.14% MoM. Li Auto delivered 51,443 NEVs, which is up +27.26% YoY and -4.22% MoM. XPeng delivered 23,917 NEVs, which is up +19.57% YoY and +12.01% MoM.

October’s “private” Caixin Manufacturing PMI, conducted by S&P Dow Jones, was 50.3 versus September’s 49.3 and expectations of 49.7. Like yesterday’s “official” PMI, government policy appears to be working though early days.

There was a lot of talk about investors sitting on the sidelines before the National People’s Congress and the US election, though Mainland investors bought a net $546 million worth of Hong Kong-listed stocks today, which brings the weekly total to $1.95 billion and the year-to-date total to $75.78 billion.

Bloomberg News reported yesterday that the China-US Financial Working Group had its sixth meeting chaired by PBOC Deputy Governor Xuan Changneng and Secretary for International Finance Brent Neiman, which included Janet Yellen and representatives from the SEC and CSRC. It appears that the Chinese and Indian governments are also making progress on their border dispute after Modi and Xi met at the BRICS conference.

In late August, Alibaba’s Hong Kong share class converted to a dual primary, meaning it falls under the regulatory purview of both the US’ SEC and Hong Kong’s SFC. The move also allowed Alibaba’s Hong Kong share class to be added to Southbound Stock Connect, the platform that allows Mainland investors to access Hong Kong-listed stocks. In just over two months time, Alibaba is now the 10^th largest position in Southbound Stock Connect, with 3.54% of its shares now being held by Mainland investors via Southbound Stock Connect. There are 680 million shares held in Southbound Stock Connect, worth HKD 66B ($8.49 billion). The top holding in Stock Connect is Tencent, in the amount of HKD 380 billion ($48.9 billion). However, one should frame it within the context that Tencent’s market cap is $500 billion versus Alibaba’s $234 billion in market cap. Regardless, one can argue that Alibaba’s ownership percentage via Southbound Stock Connect could triple. If you are interested learning about the potential impact of more companies being added to Southbound Stock Connect, check out our recent report on the subject.

Additionally, there are many companies that could announce their move to dual primary listings, such as Baidu, JD.com, Trip.com, and others, which are presently excluded from Southbound Stock Connect. Maybe we will get those dual primary announcements at the Q3 earnings calls, which kick off the 2^nd week of November.

The Hang Seng and Hang Seng Tech indexes diverged to close +1.3% and -0.34% on volume -8.41% from yesterday which is 115% of the 1-year average. 310 stocks advanced while 182 declined. Main Board short turnover increased 12.45% from yesterday which is 82% of the 1-year average as 11% of turnover was short turnover (HK short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The value factor and large caps gained more than the growth factor and small caps. All sectors were positive, except for Utilities, which fell -0.13%, led higher by Real Estate, which gained +3.07%, Communication Services, which gained +2.80%, and Materials, which gained +2.04%. The top-performing subsectors were software, transportation, and materials. Meanwhile, semiconductors, food & beverage, and autos were among the worst-performing subsectors. Southbound Stock Connect volumes were 1.5X the average as Mainland investors bought $546 million worth of Hong Kong-listed stocks and ETFs, including Tencent, Meituan, and Xiaomi, which were large net buys. Meanwhile, Alibaba and Sunac were small net buys.

Shanghai, Shenzhen, and the STAR Board fell -0.24%, -2.31%, and -3.06% on volume that increased +0.63% from yesterday, which is 252% of the 1-year average. 1,064 stocks advanced while 3,972 stocks declined. The value factor and large caps outperformed the growth factor and small caps. The top-performing sectors were Energy, which gained +1.90%, Materials, which gained +1.82%, and Real Estate, which gained +1.38%. Meanwhile, Technology fell -3.30%, Communication Services, which fell -0.92%, and Consumer Discretionary, which fell -0.69%. The top-performing subsectors were base metals, marine industry, and construction machinery. Meanwhile, software and internet were among the worst-performing subsectors. Northbound Stock Connect volumes were high, at just over 2X the average. CNY and the Asia Dollar Index fell versus the US dollar. Treasury bonds gained. Copper was flat while steel fell.

Last Night’s Performance

Last Night's Exchange Rates, Prices, & Yields

• CNY per USD 7.12 versus 7.12 yesterday
• CNY per EUR 7.74 versus 7.73 yesterday
• Yield on 10-Year Government Bond 2.14% versus 2.15% yesterday
• Yield on 10-Year Government Bond 2.22% versus 2.23% yesterday
• Copper Price 0.00%
• Steel Price -0.99%