Week in Review

• Asian equities were mixed in the first partial week of 2025 as Pakistan, the Philippines, and Japan outperformed while Mainland China, Hong Kong, and Taiwan underperformed.
• Mainland buying of Hong Kong stocks was strong this week, accounting for 50% of turnover on Monday.
• China released purchasing managers’ indexes this week, as Non-Manufacturing was stronger than expected while Manufacturing was lower, but still indicative of expansion.
• According to a data release this week, home sales volume in tier-1 cities increased significantly in 2024, up +66% in Beijing.

Key News

Asian equities ended the week mixed as South Korea outperformed, China underperformed, and Japan remained closed for New Year’s.

The US dollar is back to playing Miley Cyrus’ 2013 hit “Wrecking Ball” as the Thai Baht, Philippine Peso, and Malaysian Ringgit fell -0.52%, -0.50%, and -0.49%, respectively, against the dollar, overnight. CNY, the onshore traded Renminbi, broke through the 7.30 level for the first time since November of 2023 to close at 7.32 CNY per USD. Meanwhile, CNH, the offshore traded Renminbi, closed at 7.35 CNH per USD.

Why is there both an onshore and an offshore Renminbi? Following the late 1997 Asian Financial Crisis, several countries put currency trading restrictions in place after witnessing Thailand’s speculative bubble burst, as foreign “hot money” was a factor.

Yesterday, the China Securities Regulatory Commission (CSRC), China’s SEC, publicly stated that rumors that insurance companies were redeeming mutual funds in size and public companies were directed to release all negative news prior to January 15^th were false. This release was reiterated heavily in Mainland financial media, though the Mainland market suffered another steep decline overnight. This is despite clear efforts by the PBOC to lend RMB 55 billion via swaps to financial institutions to purchase stocks, and the National Team’s resolve to support the market, as their favored ETFs had another day of strong volumes. The “National Team” in China refers to investment firms that are associated with sovereign wealth.

Today’s market move is surprising, as there were several clear positive catalysts, both pre and post market, as evidenced by Hong Kong’s positive day.

As we reported yesterday, the Ministry of Commerce said in a release that expanding domestic consumption was the priority in 2025. The National Development and Reform Commission (NDRC) held a press conference with reporters, stating the proceeds of the RMB 1 trillion of special government bonds will be used for infrastructure and “boosting resident consumption”. As a result, the auto and home appliance trade-in subsidies will be expanded to “new purchase subsidies for mobile phones, tablets, smartwatches, wristbands, and other types of digital products.”

Xiaomi gained +6.62% on the news as Hong Kong’s most heavily traded stock, on very high volumes. Apple and Huawei mobile phone supply chain plays Sunny Optical and AAC Technologies gained +2.43% and 4.14%, respectively. E-commerce plays Alibaba and JD.com gained +1.60% and +1.28%, respectively, though I am surprised that the latter is up more.

Premier Li and the State Council met to discuss “urban renewal…ensuring payment of wages for migrant workers”. Urban renewal was cited as “an important lever for expanding domestic demand” while efforts to “accelerate the renovation of old urban residential areas” were highlighted. Replacing old apartment complexes makes sense. It is a nice step toward addressing the structural hukou reform, i.e. when migrant workers have limited rights in the cities they work in since they are not considered “residents”.

After the close, the People’s Bank of China (PBOC), China’s central bank, stated they would continue to “accelerate the process of loan disbursement for scientific and technological innovation and technological transformation” and, separately, support all banks regardless of size. Separately, the PBOC would “increase the intensity of monetary policy regulation, improve the foresight, targeted nature, and effectiveness of monetary policy regulation, and reduce the reserve requirement ratio and interest rates”. The Mainland equity market’s decline has clearly turned up the heat on both the PBOC and CSRC.

Reuters is reporting that 48 million government workers will be given a raise for the first time since 2015 to “boost spending” as the raise could be worth $12 to $20 billion.

Hong Kong faded off of its intra-day day highs, despite a very healthy $1.19 billion worth of Mainland buying via Southbound Stock Connect.

Lao Xiang Chicken, a chicken fast food chain, filed for a Hong Kong IPO.

Tencent was off despite announcing they spent $14.4B buying 307 million shares in 2024, as the number of shares outstanding is at a 10 year low, according to Yicai. The company has bought stock for 32 days in a row, having bought 1.7 million shares yesterday. Alibaba announced yesterday that it spent $1.30 billion to buy 15 million ADRs in Q4 of 2024.

The Hang Seng and Hang Seng Tech indexes gained +0.70% and +1.05%, respectively, on volume that decreased -2.69% from yesterday, which is 121% of the 1-year average. 152 stocks advanced while 329 stocks declined. Main Board short turnover decreased -5.92% from yesterday, which is 140% of the 1-year average, as 18% 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 gained more than the value factor and small caps. The top-performing sectors were Technology, which gained +4.71%, Materials, which gained +1.15%, and Consumer Discretionary, which gained +1.03%. Meanwhile, the worst performing sectors were Communication Services, which fell -0.42% and Utilities, which fell -1.14%. The top-performing subsectors were tech hardware, consumer durables, and non-ferrous metals. Meanwhile, professional services and the chemical industry were among the worst performing subsectors. Southbound Stock Connect volumes were at 2X pre-stimulus levels as Mainland investors bought a net $1.19 billion worth of Hong Kong-listed stocks and ETFs, including Xiaomi, Weimob, Tencent, Semiconductor Manufacturing (SMIC), and the Hong Kong Tracker ETF. Meituan and Alibaba were small net sells.

Shanghai, Shenzhen, and the STAR Board all closed lower by -1.57%, -2.65%, and -1.41%, respectively, on volume that declined -9.43% from yesterday, which is 120% of the 1-year average. 485 stocks advanced while 4,599 stocks declined. The value factor and large caps fell less than the growth factor and small caps. The only positive sectors were Energy, which gained +0.16%, and Materials, which gained +0.07%. Meanwhile, the worst-performing sectors were Communication Services, which fell -2.5%, Technology, which fell -2.46%, and Real Estate, which fell -2.24%. The top-performing subsectors were precious metals, coal, and oil & gas. Meanwhile, retail, internet, and education were among the worst-performing subsectors. Northbound Stock Connect volumes were just above average. CNY and the Asia Dollar Index fell versus the US dollar. Treasury bonds rallied. Copper and steel fell.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.32 versus 7.30 yesterday
• CNY per EUR 7.53 versus 7.54 yesterday
• Yield on 10-Year Government Bond 1.60% versus 1.61% yesterday
• Yield on 10-Year China Development Bank Bond 1.66% versus 1.66% yesterday
• Copper Price -0.38%
• Steel Price -0.94%