Week in Review

• Asian equities were nearly all higher this week except for Australia and Korea.
• A slew of economic data released on Monday showed significant improvements in manufacturing demand, vehicle sales, and real estate sales from October to November.
• The dates of the Central Economic Work Conference (CEWC) were confirmed this week to be December 11^th and December 12^th.
• Xinhua, an important China-based global news publication, published an editorial on Thursday highlighting the recent increase in domestic consumption and the need to keep stimulating the economy, pointing out that the double-digit increases in home appliance sales in recent months prove that the trade-in subsidy policy has been effective.
• Join KraneShares' Xiabing Su as she steps into the serene world of Chinese tea culture in our latest video.

Key News

Asia ended a positive week lower except for today’s outperformance in Mainland China, Hong Kong, and Indonesia. South Korea struggled again, though a -2.77% loss for the week is not bad considering the political turmoil. That being said, issues preceding the latest drama mean the KOSPI is off -7.38% year-to-date (YTD).

Overnight, there was increased positive chatter that next Thursday and Friday’s China Economic Work Conference (CEWC) was a factor in the market’s strong performance as growth stocks, especially consumer plays, led markets in Hong Kong and the Mainland. The CEWC will not provide specific GDP and growth targets, though the tone of the release will be key.

A major Mainland China institutional broker stated their belief that 2025 GDP growth will be “around 5%”, the deficit ratio will be increased to 4%, the total RMB special government bond quota will be RMB 3 trillion, RMB 2 trillion will go towards infrastructure and consumer goods subsidies, and RMB 1 trillion will go to bank balance sheets.

ETFs favored by China’s “National Team”, which are institutional investors associated with sovereign wealth, experienced a strong mid-morning increase in volume after a flattish open, driving the Shanghai and Shenzhen higher, which pulled the Hang Seng up. Meanwhile, Mainland investors bought a net $639 million worth of Hong Kong-listed stocks and ETFs today, including Alibaba, which was a large net buy. Mainland investors have already poured in over $90 billion into Hong Kong so far this year, compared to ony $40 billion last year, including over $2 billion this week alone.

For the first time in a while, there is no question that the National Team pushed the gas pedal, as you have to wonder if they know something we don’t. While preparing for a January China trip, I spoke with a local long-time trader who believes the National Team has put north of $150 billion into Mainland stocks so far this year, though I have not been able to replicate his work just yet.

The Hang Seng Indexes rebalanced at today’s close, including additions Kuaishou, which gained +1.82%, New Oriental, which gained +2.58%, and Midea, which fell -3.44%.

Today’s move pushed the Shanghai Composite above the 4,000 level while the Hang Seng Index is just below the 2,000 level as the technical picture improves following the post-stimulus pullback.

President Trump’s choice of former Georgia Senator David Perdue as Ambassador to China did not receive much coverage, nor was the appointment cited as a catalyst, despite President Trump’s positive comments, including that “he will be instrumental in implementing my strategy to maintain peace in the region and a productive working relationship with China’s leaders”. The President-Elect also said that “David brings valuable expertise to help build our relationship with China,” having worked in Singapore and Hong Kong.

Hong Kong-listed growth stocks, including internet stocks, led the market higher along with Sense Time, which gained +14.77% on an AI-focused reorganization, and Wuxi Biologics, which gained +5.47%, and Wuxi AppTec, which gained +9.2% on chatter that US regulations impacting the companies will be changed. Below are a few items that jumped out to me but were not necessarily market movers.

• The CSRC clarified that stock buyback loans will be extended from 1 to 3 years while increasing the financing ratio from 70% to 90%.
• Three more provinces refinanced hidden debt to clean up their balance sheets including Ningxia (RMB 13.8 billion), Tibet (RMB 13.7 billion), and Gansu (RMB 7.2 billion). The Ministry of Finance separately released a statement on facilitating local government hidden debt bond issuance while “resolutely curbing the addition of new hidden debt”. There’s only one “get of jail free” card available to each municipality, apparently.
• The 2024 Annual General Meeting of the Photovoltaic Industry took place yesterday with major solar companies, including LONGi, GCL, Tongwei, and others, to discuss “control production, but there is no specific quota” announced.
• Premier Li, who is running the day-to-day economic policy focus, will meet on Monday with the senior leaders of the World Bank, Bank of China, the IMF, the WTO, the UN Trade & Development Council, the International Labor Organization, OECD, the International Clearing Bank, and the Asia Infrastructure Investment Bank to discuss the global economy and China's reform and opening.
• Multiple articles have been written on the real estate industry's recovery, as indicated by transaction sales, price increases, and low mortgage rates. Hopefully, we will see a rebound in consumer confidence, which has not followed housing prices yet, having fallen with them.
• Ant Group’s famous Tianhong Yue Bao money market fund is now yielding just 1.27% versus the Shanghai and Shenzhen average stock dividend yield of 2.61% and 1.53%, respectively. Assets in the fund are now  just $108 billion versus an all-time high of $268 billion. However, they are up from year-end 2023’s $98.8 billion.

Have a great weekend!

The Hang Seng and Hang Seng Tech indexes gained +1.56% and +2.16%, respectively, on volume that increased +48.85% from yesterday, which is 128% of the 1-year average. 397 stocks advanced, while 85 stocks declined. Main Board short turnover increased +48% from yesterday, which is 111% 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 growth factor and large caps outperformed the value factor and small caps. All sectors were positive, including Consumer Discretionary, which gained +2.69%; Utilities, which gained +2.41%; and Consumer Staples, which gained +1.91%. The top-performing subsectors were household products, consumer durables, and autos. Meanwhile, electrical equipment, chemical industry, and household appliances were among the worst-performing. Southbound Stock Connect volumes were back to pre-stimulus levels as Mainland investors bought a net $639 million worth of Hong Kong-listed stocks and ETFs, including China Mobile, Xiaomi, WuXi Biologics, and Semiconductor Manufacturing (SMIC). Meanwhile, Sense Time and Alibaba were large net sells.

Shanghai, Shenzhen, and the STAR Board diverged to close +1.05%, +1.24%, and +1.26%, respectively, on volume that increased +19.48% from yesterday, which is 180% of the 1-year average. 3,582 stocks advanced, while 1,445 stocks declined. The growth factor and small caps outperformed the value factor and large caps. All sectors were positive, led by Health Care, which gained +1.9%; Industrials, which gained +1.68%; and Financials, which gained +1.41%. The top-performing subsectors were education, cultural media, and insurance. Meanwhile, auto parts and power generation were among the worst-performing subsectors. Northbound Stock Connect volumes were above average. CNY and the Asia Dollar Index made small gains versus the US dollar. Treasury bond prices were flat. Copper gained while steel fell.

Last Night's Performance

Last Night's Exchange Rates, Prices, & Yields

• CNY per USD 7.26 versus 7.27 yesterday
• CNY per EUR 7.69 versus 7.65 yesterday
• Yield on 10-Year Government Bond 1.95% versus 1.95% yesterday
• Yield on 10-Year China Development Bank Bond 2.03% versus 2.03% yesterday
• Copper Price +0.05%
• Steel Price -1.22%