Key News

Asian equities were mixed overnight as Taiwan and South Korea outperformed, while India underperformed as the Rupee slid against the US dollar.

The US dollar is now falling, following an article from the Washington Post. The incoming Trump Administration’s tariffs won’t be as dramatic as anticipated, which has been our opinion for quite some time. Investors taking campaign rhetoric as economic policy has fueled the US dollar’s strength, which has weighed on risk assets, including emerging market stocks. It is worth noting that the PBOC continues to defend the Renminbi versus the US dollar as they attempt to stabilize the currency and prevent the Renminbi from weakening. This morning’s currency turnaround is lifting stocks, including US-listed China stocks, following another lackluster day in Mainland China and Hong Kong, again despite some positives.

The December Caixin Services PMI accelerated month-over-month to 52.2 from November’s 51.5 and beat expectations of 51.4.

The Shanghai and Shenzhen Stock Exchanges met with eight foreign investment firms to solicit their views on increasing the market. 44 of the 73 Mainland listed companies issuing year-end 2024 earnings forecasts reported positive earnings. There was also a Mainland report that insurance companies’ equity allocation limit could be increased. What’s weighing on the market, then?

The China Securities Regulatory Commission (CSRC), China's SEC, has been tightening delisting rules, which is weighing particularly on small and micro-capitalization stocks and overall investor sentiment. Overnight, the CSRC suspended trading in small-cap biotech for falsifying revenue, for instance. The moves to raise the quality of Mainland companies' reporting is obviously a good thing, though it has clearly spooked local investors. Mainland retail investors tend to focus on these smaller growth names rather than large and mega-capitalization stocks.  

For Hong Kong, the Trump tariff threat is keeping foreign investors and their capital sidelined. An astute and experienced investor recommended that we learn more about incoming Treasury Secretary Scott Bessent, which we did by listening to interviews on the Capital Allocators and Ren Mac podcasts. We recommend you do the same as this is not the type of person to replicate the economic policies of the 1930s, i.e. the era of the Smoot-Hawley tariffs that were detrimental to the US economy.

Tencent and Meituan underperformed, falling -1.16% and -1.95%, respectively, while JD.com gained +1.12% on an analyst upgrade as we continue to believe the company will benefit from the trade-in subsidy policy expanding to consumer electronics.

Healthcare stocks outperformed as the flu spreads across China, as well as recent State Council support of the sector.

Liquor names were weak following the US Surgeon General’s alcohol warning, despite Kweichow Moutai releasing its 2025 "Snake Moutai". Mainland investors bought the Hong Kong dip with $659 million of net buying today via Southbound Stock Connect.

The Hang Seng and Hang Seng Tech indexes fell -0.36% and -0.18%, respectively, on volume down -24.15% from Friday, which is 91% of the 1-year average. 197 stocks advanced, while 279 declined. Main Board short turnover decreased by -32% from Friday, which is 94% of the 1-year average, as 16% 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 small capitalization stocks fell less than the growth and large capitalization stocks. The top-performing sectors were Energy, which gained +0.40%, Technology, which gained +0.13%, and Financials, which gained +0.11%. Meanwhile, the worst-performing sectors were Consumer Staples, which fell -1.13%, Materials, which fell -0.88%, and Communication Services, which fell -0.86%. The top-performing subsectors were steel and the chemical industry. Meanwhile, consumer durables, food, and household products were among the worst-performing subsectors. Southbound Stock Connect volumes were 1.5x pre-stimulus levels as Mainland investors bought a net $659 million worth of Hong Kong-listed stocks and ETFs, led by Xiaomi, a large net buy, China Mobile, a moderate net buy, Tencent, Sunac, Semiconductor Manufacturing (SMIC), Meituan with small net buys, and Weimob a small net sell.

Shanghai, Shenzhen, and the STAR Board fell -0.14%, -0.38%, and -0.33%, respectively, on volume down -16.44% from Friday, which is 100% of the 1-year average. 1,214 stocks advanced, while 2,751 declined. Value and large capitalization stocks fell less than growth and small capitalization stocks. The top-performing sectors were Healthcare, which gained +0.49%, Materials, which gained +0.43%, and Financials, which gained +0.28%. Meanwhile, the worst-performing sectors were Consumer Staples, which fell -1.98%, Communication Services, which fell -1.11%, and Utilities, which fell -0.79%. The top-performing subsectors were pharmaceuticals, motorcycles, and steel. Meanwhile, retail, liquor, and tourism were among the worst-performing subsectors. Northbound Stock Connect volumes were just above average. CNY fell while the Asia Dollar Index made a small gain versus the US dollar. The Treasury curve flattened. Copper rose while steel fell.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.32 versus 7.32 Friday
• CNY per EUR 7.61 versus 7.53 Friday
• Yield on 10-Year Government Bond 1.60% versus 1.60% Friday
• Yield on 10-Year China Development Bank Bond 1.64% versus 1.66% Friday
• Copper Price +0.88%
• Steel Price -0.43%