Week in Review

• Asian equities were mostly higher this week, as Japan and China outperformed, while Indonesia and Australia underperformed, after Israel and Iran agreed to a ceasefire following US strikes.
• Six government agencies announced various measures, including expanding consumer lending and strengthening access to pensions for individuals, to stimulate domestic consumption in a joint press release on Wednesday.
• Brokerage firm Guotai Junan International became the first Mainland China-based company to offer trading accounts for cryptocurrency, making them available to clients in Hong Kong after securing approval from the special administrative region’s (SAR) Securities & Futures Commission (SFC).
• Starbucks rebuffed media reports about selling its entire China business. Executives said that the global premium coffee shop giant would only pursue a partial sale of its China assets and remained confident in its “strong team” within the country.

Key News

Asian equities ended a positive week mixed, as Japan outperformed, while Indonesia and Malaysia were closed for the Islamic New Year, which is also known as Hijri New Year, marking the start of the Islamic calendar.

Yesterday, we wrote about Harvard’s Graham Allison stating at the Summer Davos that the US and China would announce a trade deal next week. Commerce Secretary Lutnick confirmed that such a deal had been signed after the US markets’ close. China’s Ministry of Commerce (MoC) confirmed the deal at a 3 pm press conference. When a Reuters reporter asked about China releasing rare earths, the answer was “China will approve the export applications of qualified controlled items”. A lack of details on the new agreement, combined with strong performance from earlier this week, explains the lackluster returns in Asia overnight. Investors probably need to hear more, though the Wall Street Journal correctly notes the recent regulation of two fentanyl precursors following a meeting with US Ambassador Perdue.

One negative weighing on markets was May’s industrial profits, which declined 9.1% year-over-year (YoY) from April’s 3.0%. This brings the year-to-date (YTD) change in industrial profits to -1.1% from April’s YTD increase of 1.4%. The main culprit appears to be the high bar presented by the YoY comparison, as industrial profits, sales, and receivables all increased on a month-over-month basis. National Bureau of Statistics (NBS) statistician Yu Weining stated that “short-term factors such as investment income had a high base in the same period last year”, as “multiple factors such as insufficient effective demand, falling industrial product prices, and short-term fluctuations” influenced the readings.

Xiaomi was Hong Kong’s most heavily traded stock by value, gaining +3.6% on a massive volume worth HKD 28.7 billion (481 million shares traded) versus 126 million shares traded yesterday. The company received 289,000 orders for its new YU7 SUV, which will cost RMB 253,000 ($35,366).

Guotai Junan International shares fell -14.69%, though they remain well above Tuesday’s close, which was before their cryptocurrency trading approval in Hong Kong and subsequent surge. Markets in Hong Kong and Mainland China were weighed down by the poor performance of subsectors that are large index weights, including large banks, insurance companies, liquor, oil & gas, and telecom. The underlying stocks are mainly listed on the Shanghai Stock Exchange, representing a 0.70% weight, which explains its underperformance versus the Shenzhen Component Index, which gained +0.34%. Technology hardware, arguably a beneficiary of better US-China trade talks, mining, precious, and base metals all had good sessions.

A non-factor in last night’s performance was the Monetary Policy Committee Q2 press release from the People’s Bank of China (PBOC), China’s central bank, following their June 23^rd meeting. The release acknowledges that the “current external environment is more complex and severe, the momentum of world economic growth is weakened, and trade barriers have been increased”. However, “China's economy is showing a positive trend, social confidence continues to be boosted, and high-quality development has been steadily promoted.” Because the economy “…still faces difficulties and challenges such as insufficient domestic demand…”, the PBOC will “implement a moderate loose monetary policy, strengthen countercyclical regulation, better play the dual functions of the total amount and structure of monetary policy tools, increase the coordination between monetary and fiscal policies, and maintain stable economic growth and reasonable prices.”

Premier Li and the State Council met to discuss plans on implementing the “National Science and Technology Conference and accelerating the construction of a strong science and technology country”.  The release highlighted policies on how to “accelerate the high-level self-reliance in science and technology”. Hopefully, we will see a bigger market reaction as the trade deal details are released.

MSCI China’s earnings per share (EPS) growth estimate for the next year is 7.44% (S&P 500’s 6.32%, Euro Stoxx’s is 2.77%). The problem with buying the broad benchmark is that not all sectors are growing that fast. For instance, MSCI China’s Financial Sector, which makes up about 18% of the index, has an EPS growth estimate for the next year of only 0.99%. On the other hand, MSCI China’s Technology Sector has an EPS growth estimate for the next year of 55%! Draw your own conclusion, though I think you can guess where my chips are placed!

In preparing to speak to a foreign institutional investor, I realized that one of the largest companies in that country is a commodity producer that generates 50% of its revenue in China. In March, Brazilian mining giant Vale’s CEO, Gustavo Pimenta, stated, “The tone has changed a lot. Economic activity has reacted. There has been a lot of stimulus for consumption, heated manufacturing, and consistent investment in infrastructure.” Sounds positive to me!

Last Night’s Performance

Country/Index	Ticker	1-Day Change
China (Hong Kong)	HSI Index	-0.2%
Hang Seng Tech	HSTECH Index	-0.1%
Hong Kong Turnover	HKTurn Index	5.1%
Hong Kong Short Sale Turnover	HKSST Index	19.7%
Short Turnover as a % of Hong Kong Turnover	N/A	11.7%
Southbound Stock Connect Net Buy/Sell (US $ Millions)	N/A	0
China (Shanghai)	SHCOMP Index	-0.7%
China (Shenzhen)	SZCOMP Index	0.4%
China (STAR Board)	Star50 Index	-0.2%
Mainland Turnover	.chturn Index	-2.7%
Nouthbound Stock Connect Net Buy/Sell (US $ Millions)	N/A	Not Available
Jing Daily China Global Luxury Index	CHINALUX Index	1.6%
Japan	NKY Index	1.4%
India	SENSEX Index	0.4%
Indonesia	JCI Index	1%
Malaysia	FBMKLCI Index	0.6%
Pakistan	KSE100 Index	1.7%
Philippines	PCOMP Index	1.2%
South Korea	KOSPI Index	-0.8%
Taiwan	TWSE Index	0.4%
Thailand	SET Index	-2.2%
Singapore	STI Index	0.7%
Australia	AS51 Index	-0.4%
Vietnam	VNINDEX Index	0.4%

Indicator	Hong Kong	Mainland China
Today's Volume % of 1-Year Average	140	119
Advancing Stocks	221	3162
Declining Stocks	242	1689
Outperforming Factors	Momentum, Growth, Liquidity	Liquidity, Growth, Buybacks
Underperforming Factors	Low Volatility, Value, Large Caps	Large Caps, Low Volatility, Momentum
Top Sectors	Tech, Materials, Energy	Materials, Tech, Real Estate
Bottom Sectors	Healthcare, Financials, Utilities	Financials, Utilities, Discretionary
Top Subsectors	Consumer Staples Distribution, Tech Hardware, National Defense	Base Metals, Precious Metals, Communication Equipment
Bottom Subsectors	Utilities, Pharmaceutical, Banks	Banking, Insurance, Power
Southbound Connect Buys	SMIC (Moderate), CityChamp (Small)	N/A
Southbound Connect Sells	Xiaomi (Large), Alibaba, Tencent (Moderate), Guotai Junan (Small)	N/A

MSCI China All Shares Index	# of Stocks	Average 1-Day Change (%)
Hong Kong Listed	152	-0.29
Communication Services	9	-0.12
Consumer Discretionary	30	-0.36
Consumer Staples	13	0.36
Energy	7	0.44
Financials	23	-1.59
Health Care	13	-2.41
Industrials	19	-0.01
Information Technology	10	2.85
Materials	10	2.18
Real Estate	6	-1.14
Utilities	12	-1.57
Mainland China Listed	432	-0.49
Communication Services	9	0.02
Consumer Discretionary	31	-0.89
Consumer Staples	27	-0.85
Energy	16	-0.02
Financials	63	-1.92
Health Care	40	-0.05
Industrials	69	-0.16
Information Technology	85	0.97
Materials	68	1.42
Real Estate	7	0.04
Utilities	17	-1.85

US & Hong Kong Dually Listed	Ticker	1-Day Change (%)
Tencent HK	700 HK Equity	0
Alibaba HK	9988 HK Equity	-0.1
JD.com HK	9618 HK Equity	0.2
NetEase HK	9999 HK Equity	-1.1
Yum China HK	9987 HK Equity	-1.5
Baozun HK	9991 HK Equity	-2.1
Baidu HK	9888 HK Equity	-2.2
Autohome HK	2518 HK Equity	0
Bilibili HK	9626 HK Equity	0.8
Trip.com HK	9961 HK Equity	-1
EDU HK	9901 HK Equity	-2.1
Xpeng HK	9868 HK Equity	-3.2
Weibo HK	9898 HK Equity	-1.6
Li Auto HK	2015 HK Equity	-1.8
Nio Auto HK	9866 HK Equity	-1.8
Zhihu HK	2390 HK Equity	0
KE HK	2423 HK Equity	0.6
Tencent Music Entertainment HK	1698 HK Equity	-0.6
Meituan HK	3690 HK Equity	-0.5

Hong Kong's Most Heavily Traded by Value	1-Day Change (%)
XIAOMI CORP-CLASS B	3.6
ALIBABA GROUP HOLDING LTD	-0.1
TENCENT HOLDINGS LTD	0
GUOTAI JUNAN INTERNATIONAL	-14.7
MEITUAN-CLASS B	-0.5
BYD CO LTD-H	-1.2
CHINA CONSTRUCTION BANK-H	-1.1
SEMICONDUCTOR MANUFACTURING	0.8
KUAISHOU TECHNOLOGY	1.7
XPENG INC - CLASS A SHARES	-3.2

Shanghai and Shenzhen's Most Heavily Traded by Value	1-Day Change (%)
EAST MONEY INFORMATION CO-A	-0.4
TIANFENG SECURITIES CO LTD-A	7.9
ZHONGJI INNOLIGHT CO LTD-A	6.7
BEIJING COMPASS TECHNOLOGY-A	-3.4
EOPTOLINK TECHNOLOGY INC L-A	5.5
SHENZHEN FORMS SYNTRON INF-A	2.1
HUNDSUN TECHNOLOGIES INC-A	0.3
HENGBAO CO LTD-A	10
CONTEMPORARY AMPEREX TECHN-A	-0.7
LAKALA PAYMENT CO LTD-A	-2.4

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.17 versus 7.17 yesterday
• CNY per EUR 8.41 versus 8.40 yesterday
• Yield on 10-Year Government Bond 1.65% versus 1.65% yesterday
• Yield on 10-Year China Development Bank Bond 1.69% versus 1.69% yesterday
• Copper Price 1.27%
• Steel Price 0.81%