Gamesmanship or Showmanship?
6 Min. Read Time
Key News
Asian equities were a sea of red despite the weekend backtracking by President Trump and his Administration, following Friday’s tariff escalation threat and market plunge. Hong Kong, Taiwan, and Pakistan underperformed, while Japan was closed for National Sports Day and Thailand was closed for H.M. King Bhumibol Adulyadej Memorial Day.
It is critical to recognize that both Hong Kong and Mainland China closed well off intra-day lows:
- The Hang Seng closed -1.52% versus the intra-day low of -3.63%
- The Hang Seng Tech closed -1.82% versus the intra-day low of -4.90%
- The Shanghai Composite -0.19% versus intra-day low -2.49%
- Shenzhen Composite -0.74% versus intra-day low -3.76%
- STAR Board +1.4% versus intra-day low -2.96%
Hong Kong volumes were very high, at 208% of the 1-year average, as Mainland investors purchased a substantial $2.55 billion worth of Hong Kong-listed stocks and ETFs, with the Hong Kong Tracker ETF experiencing significant inflows. Despite the very high Connect volumes, Mainland investors accounted for only 23% of Hong Kong turnover, indicating that China was underweight; foreign investors were likely buying on today’s dip.
Copley Fund Research reported that 22% of actively managed global funds had no China exposure as of the end of August. The consensus view is that both sides are posturing and creating leverage going into the APEC meeting in Korea, with expectations that the two big bosses will do a deal.
Friday’s move shows how sensitive investors are to the Kabuki political theater. Trump’s backtracking validates my colleague Brian’s belief Trump will not do anything to tank the US stock market as the US stock market's wealth effect on US consumption is very real. China’s government should appreciate that President Trump is willing to negotiate, while Washington, D.C., Congress, and the US media all remain exceedingly anti-China.
The Senate’s version of the untouchable Defense budget bill (NDAA) includes the FIGHT China Act (restricting US investment in military technology) and the BIOSECURE Act (preventing US government agencies or entities receiving Medicare and Medicaid funding from contracting with Chinese biotech companies). The Senate and House need to reconcile their differences, so the provisions aren’t a done deal.
Arguably, China’s Qualcomm and rare earth moves are in response US’ threatened semiconductor export ban and targeting Chinese ships, not so subtle reminders of the leverage on both sides. The Ministry of Commerce stated in a press conference that the new are earth rule are not a ban.
So, what actually happened today? Trade war beneficiaries and defensives rose, including rare earths, precious metals, mining, and semiconductors. Meanwhile, growth stocks, especially healthcare and biotech, were off, as others clearly noticed the passage of the BIOSECURE Act.
Autos and electric vehicles (EVs) were off, despite the China Passenger Car Association reporting retail car sales increased +6.3% year-over-year (YoY) in September to 2.24 million and 11% month-over-month (MoM). Xiaomi fell -5.71%, off more due to a fatal car crash involving a SU7. It was interesting that Alibaba, Tencent, and Semiconductor Manufacturing International (SMIC) were rare net sells via Southbound Stock Connect today, indicating that Mainland traders were quick to take profits, i.e. weak hands were shaken out. There were very similar moves in Mainland China, though technology hardware names and the Apple ecosystem were crushed.
The Mainland-listed China equity ETFs favored by the National Team did not see massive volumes, except for one CSI 300 ETF, which had volumes that were 2X the 30-day average. In the last week, the favored ETFs have seen inflows totaling more than $3.3 billion.
China’s weak August trade numbers were intended to demonstrate the weakness of China’s economy. Maybe August was weak because it is crazy hot in China and people globally are on vacation? September trade numbers were strong absolutely crushing economist expectations, as Exports increased +8.3% YoY versus August’s +4.4% and expectations of 6.6% and Imports +7.4% versus August’s 1.3% and expectations of 1.8%.
Despite all the talk of tariffs and elimination of the de minimis rule on low-value packages, the General Administration of Customs reported total cross-border e-commerce increased 6.4% YoY year-to-date (1st 3 quarters), as exports increased +6.6% (RMB 1.6 trillion) and imports +5.9% (RMB 425B).
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | -1.5% |
| Hang Seng Tech | HSTECH Index | -1.8% |
| Hong Kong Turnover | HKTurn Index | 46.9% |
| Hong Kong Short Sale Turnover | HKSST Index | 72.2% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 15.9% |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | 2529.29719029374 |
| China (Shanghai) | SHCOMP Index | -0.2% |
| China (Shenzhen) | SZCOMP Index | -0.7% |
| China (STAR Board) | Star50 Index | 1.4% |
| Mainland Turnover | .chturn Index | -6.4% |
| Northbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | Not Available |
| Jing Daily China Global Luxury Index | CHINALUX Index | -0.7% |
| Japan | NKY Index | -1% |
| India | SENSEX Index | -0.2% |
| Indonesia | JCI Index | -0.4% |
| Malaysia | FBMKLCI Index | -0.4% |
| Pakistan | KSE100 Index | -2.6% |
| Philippines | PCOMP Index | 0.2% |
| South Korea | KOSPI Index | -0.7% |
| Taiwan | TWSE Index | -1.4% |
| Thailand | SET Index | -2.1% |
| Singapore | STI Index | -0.8% |
| Australia | AS51 Index | -0.8% |
| Vietnam | VNINDEX Index | 1% |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume as % of 1-Year Average | 208 | 141 |
| Advancing Stocks | 156 | 1468 |
| Declining Stocks | 325 | 3572 |
| Outperforming Factors | Value | Value |
| Underperforming Factors | Growth, Liquidity, Buybacks | Growth, Quality, Large Caps |
| Top Sectors | Materials, Utilities, Energy | Materials, Utilities |
| Bottom Sectors | Tech, Healthcare, Communication | Healthcare, Discretionary, Communication |
| Top Subsectors | Non Ferrous Metals, Semis, Electrical Equipment | Precious Metals, Base Metals, Power Generation Equipment |
| Bottom Subsectors | Tech Hardware, Media/Entertainment, Auto | Soft Drink, Petrochemical, Auto Parts |
| Southbound Connect Buys | HK Tracker ETF (Massive), Hua Hong Semi (Large), Meituan, Xiaomi, ZTE (Moderate) | N/A |
| Southbound Connect Sells | Alibaba, Tencent (Large), SMIC (Moderate) | N/A |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 151 | -1.53 |
| Communication Services | 9 | -1.81 |
| Consumer Discretionary | 28 | -1.75 |
| Consumer Staples | 13 | -0.28 |
| Energy | 7 | 0.05 |
| Financials | 23 | -0.76 |
| Health Care | 13 | -2.18 |
| Industrials | 20 | -0.3 |
| Information Technology | 10 | -4.13 |
| Materials | 10 | 1.67 |
| Real Estate | 6 | -0.63 |
| Utilities | 12 | 0.6 |
| Mainland China Listed | 404 | -0.65 |
| Communication Services | 6 | -1.01 |
| Consumer Discretionary | 31 | -2.06 |
| Consumer Staples | 24 | -0.99 |
| Energy | 13 | -0.11 |
| Financials | 64 | -0.28 |
| Health Care | 31 | -2.13 |
| Industrials | 64 | -0.78 |
| Information Technology | 91 | -0.94 |
| Materials | 58 | 1.11 |
| Real Estate | 6 | -0.85 |
| Utilities | 16 | 0.17 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | -1.9 |
| Alibaba HK | 9988 HK Equity | -1.7 |
| JD.com HK | 9618 HK Equity | -3.6 |
| NetEase HK | 9999 HK Equity | -1 |
| Yum China HK | 9987 HK Equity | -0.8 |
| Baozun HK | 9991 HK Equity | -2.8 |
| Baidu HK | 9888 HK Equity | -2.1 |
| Autohome HK | 2518 HK Equity | -0.2 |
| Bilibili HK | 9626 HK Equity | -5.4 |
| Trip.com HK | 9961 HK Equity | -2 |
| EDU HK | 9901 HK Equity | -3.6 |
| Xpeng HK | 9868 HK Equity | -3.3 |
| Weibo HK | 9898 HK Equity | -2.6 |
| Li Auto HK | 2015 HK Equity | -3.5 |
| Nio Auto HK | 9866 HK Equity | -4.1 |
| Zhihu HK | 2390 HK Equity | -3.6 |
| KE HK | 2423 HK Equity | -2 |
| Tencent Music Entertainment HK | 1698 HK Equity | -2.2 |
| Meituan HK | 3690 HK Equity | -1.9 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ALIBABA GROUP HOLDING LTD | -1.7 |
| TENCENT HOLDINGS LTD | -1.9 |
| XIAOMI CORP-CLASS B | -5.7 |
| SEMICONDUCTOR MANUFACTURI-H | 3.4 |
| HUA HONG SEMICONDUCTOR LTD-H | 8 |
| MEITUAN-CLASS B | -1.9 |
| HONG KONG EXCHANGES & CLEAR | -2.7 |
| KUAISHOU TECHNOLOGY | -4.1 |
| ZIJIN MINING GROUP CO LTD-H | 1.7 |
| BYD CO LTD-H | -1.8 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| CHINA NORTHERN RARE EARTH -A | 10 |
| ZTE CORP-A | 3.2 |
| SEMICONDUCTOR MANUFACTURIN-A | 6.7 |
| CONTEMPORARY AMPEREX TECHN-A | -2 |
| LUXSHARE PRECISION INDUSTR-A | -5 |
| ZHONGJI INNOLIGHT CO LTD-A | -3.2 |
| SUNGROW POWER SUPPLY CO LT-A | -3.6 |
| EOPTOLINK TECHNOLOGY INC L-A | 0.7 |
| ZIJIN MINING GROUP CO LTD-A | 1.4 |
| TONGFU MICROELECTRONIC CO-A | 3 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 7.13 versus 7.14 Friday
- CNY per EUR 8.26 versus 8.25 versus 8.28 Friday
- Yield on 10-Year Government Bond 1.84% versus 1.82% Friday
- Yield on 10-Year China Development Bank Bond 1.95% versus 1.97% Friday
- Copper Price -2.42%
- Steel Price -0.68%
