Week in Review

• Asian equities were mostly higher this week on light Christmas volumes as Pakistan and Japan outperformed and Korea and Indonesia underperformed.
• The US Congress removed restrictions on outbound China investments that were included in the original Continuing Resolution (CR) in a revised CR that will keep the government funded into the new year.
• Apple tapped Baidu along with Tencent to run AI programs in iPhones sold in China.
• The Central Economic Work Conference (CEWC) earlier this month resulted in the issuance of RMB 3 trillion special purpose bonds, compared to an expected RMB 1 trillion, and commitments from the Ministry of Finance (MoF) to be “more proactive” in fiscal policy.
• Join KraneShares' Xiabing Su and Coco Zhang as they explore Shanghai's vibrant Christmas markets in our latest video.

Key News

Asian equities ended a quiet week largely higher for the day and the week, except for South Korea on the continued political turbulence.

There were a few noteworthy news items overnight, though both markets bounced around the room on light volumes. The Hang Seng Index managed to stay above the big round number of 20,000.

The biggest news arguably was Mainland investors buying a healthy net $1.1 billion worth of Hong Kong-listed stocks and ETFs via Southbound Stock Connect, which accounted for 61% of Hong Kong turnover versus the year-to-date average of 36%.

November Industrial Profits fell -7.3% versus October’s -10% though no one seemed to notice nor care. The World Bank also raised China’s 2024 GDP estimate to 4.9%.

There was some chatter about the China Banking and Insurance Regulatory Commission (CBIRC) issuing qualification requirements for bank executives though Hong Kong and Mainland China mega market cap banks were mixed.

Hong Kong-listed internet stocks were off. Alibaba fell -0.69% despite announcing a joint venture in South Korea. Xiaomi gained +4.27% after announcing that their electric vehicles (EVs) can utilize competitors’ charging stations.

Battery maker CATL’s re-listing in Hong Kong caught attention, though we covered it several days ago.

Main Board stocks surged in the late morning as several of the ETFs favored by China’s “National Team”, i.e. investment firms associated with sovereign wealth, saw higher volumes on reports of winter tourism consumption vouchers being issued in multiple cities. However, the rally ran out of steam in the afternoon as electronic hardware and communication names were weak. Shanghai closed at 3,400 while Shenzhen closed at 2,014.

The Hang Seng and Hang Seng Tech indexes rose diverged to close -0.04% and +0.69%, respectively, on volume that increased +65% from Tuesday, which is 106% of the 1-year average. 238 stocks advanced while 240 stocks declined. Main Board short turnover increased +75% from Friday, which is 80% 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). The value factor and large caps both gained more than the growth factor and small caps. The top-performing sector data was unavailable overnight. The top-performing subsectors were industry conglomerates, technology hardware, and semiconductors. Meanwhile, food & beverage, media, and pharmaceuticals were among the worst-performing subsectors. Southbound Stock Connect volumes were 2x pre-stimulus levels as Mainland investors bought a net $1.1 billion worth of Hong Kong-listed stocks and ETFs, including Semiconductor Manufacturing International (SMIC), which was a large net buy, Xiaomi, Weimob, and Li Auto. Meanwhile, Tencent and Meituan were moderate net sells, and ZTE was a small net sell.

Shanghai, Shenzhen, and the STAR Board diverged to close +0.06%, +0.20%, and -0.82%, respectively, on volume that increased +12.76% from yesterday, which is 137% of the 1-year average. 3,440 stocks advanced while 1,578 stocks declined. The value factor and large caps gained more than the growth factor and small caps. The top-performing sectors were Real Estate, which gained +1.27%, Utilities, which gained +0.99%, and Industrials, which gained +0.42%. Meanwhile, the worst-performing sectors were Information Technology, which fell -1.36%, Communication Services, which fell -0.91%, and Materials, which fell -0.34%. The top-performing subsectors were agriculture, forest industry, and aerospace. Meanwhile, computer hardware, telecom, and precious metals were among the worst-performing subsectors. Northbound Stock Connect volumes were just above average. CNY and the Asia Dollar Index both fell versus the US dollar. Treasury bonds rallied. Copper rose while steel fell.

Last Night's Performance

Last Night's Exchange Rates, Prices, & Yields

• CNY per USD 7.30 versus 7.30 yesterday
• CNY per EUR 7.61 versus 7.59 yesterday
• Yield on 10-Year Government Bond 1.69% versus 1.72% yesterday
• Yield on 10-Year China Development Bank Bond 1.77% versus 1.80% yesterday
• Copper Price 0.26%
• Steel Price -0.79%