Tit for Tat = Risk Off
6 Min. Read Time
Key News
Asian equities were a sea of red, except for Australia, as the US dollar strengthened and the US Treasury 10-year yield was knocking at 4% on rising geopolitical tensions.
Hong Kong and Mainland China opened higher but quickly declined as the sell-off intensified following additional tit-for-tat tariff announcements. After yesterday’s pullback, foreign investors bought the dip in Hong Kong alongside Mainland investors via Southbound Stock Connect, resulting in $1.106 billion of net buying. However, foreign investors paused buying as both governments implemented new port fees on each other’s domestically built ships.
The drop accelerated in early afternoon trading after news broke that the Chinese government would sanction five US subsidiaries of Hanwha Ocean, a South Korean shipbuilder. Separately, the Dutch government seized local chipmaker Nexperia from its Chinese owner, Wingtech, who purchased the company for $3.63 billion in 2018. This sharp escalation has received little coverage in US media.
A spokesperson for China’s Ministry of Commerce responded to questions about the recent US tariff threat, noting, “China's export control is not a ban on exports, but will continue to license applications that meet the requirements, so as to jointly maintain the safety and stability of the global supply chain.” The spokesperson clarified that China notified the US in advance via their bilateral export control dialogue mechanism. It appears a lower-level notification may not have reached President Trump, who seemed surprised by last Friday’s rare earth announcement.
Some argue the recent moves in Hong Kong and Mainland China simply reflect the unwinding of an overbought market. On September 10, 89% of Hang Seng Index constituents traded above their 10-day moving average, compared with just 29% today. Similarly, 96% of holdings were above their 50-day moving average on July 22, versus only 39% now.
Others see current tensions as posturing before President Trump and President Xi Jinping meet, with both sides aiming to claim victory for domestic audiences. Certain industries are expected to relocate to the US for strategic and economic reasons, including steel, semiconductors and rare earths for defense (e.g., TSMC Arizona), vital pharmaceuticals, and auto manufacturing, which supports many American jobs.
The critical point is that President Trump remains one of the few in Washington, DC, willing to engage and negotiate with China. As evidence, Secretary of State Marc Rubio, formerly a vocal critic of China in Congress, has shifted toward engagement following President Trump’s directive. His influence over the Republican Party is unparalleled. The Chinese government should recognize that this window for meaningful negotiations may not remain open indefinitely, as continued friction is not in the interests of either government or global investors.
Both Hong Kong and Mainland China experienced weak trading sessions, with decliners decisively outpacing advancers. Even gold, precious metals, and mining stocks fell as global trade-exposed sectors, including technology hardware, electronic equipment, semiconductors, and healthcare, declined. The only segments to gain in Hong Kong and Mainland China were banks and insurance companies, as investors rotated into high-yielding defensive positions. Many investors now balance their Mainland China portfolios between growth stocks for upside potential and high-yielding stocks for risk mitigation during volatile markets.
Promising news was overshadowed, such as Tencent’s announcement that it will use open-source code for its Youtu-Embedding enterprise model, and Alibaba’s report of a 30% month-over-month volume increase in its international e-commerce unit in September, driven by AI-powered search capabilities.
September inflation data is scheduled for release tomorrow. In addition, preliminary third quarter financial estimates are circulating: Tencent reported a 13% year-over-year gain for the quarter, while JD.com’s revenue is expected to rise 14% year-over-year. Premier Li met with economic and private sector executives, including MINSIO’s CEO.
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | -1.7% |
| Hang Seng Tech | HSTECH Index | -3.6% |
| Hong Kong Turnover | HKTurn Index | -18.7% |
| Hong Kong Short Sale Turnover | HKSST Index | -19.1% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 15.8% |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | 1098.8 |
| China (Shanghai) | SHCOMP Index | -0.6% |
| China (Shenzhen) | SZCOMP Index | -1.9% |
| China (STAR Board) | Star50 Index | -4.3% |
| Mainland Turnover | .chturn Index | 9.4% |
| Northbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | Not Available |
| Jing Daily China Global Luxury Index | CHINALUX Index | -1.4% |
| Japan | NKY Index | -2.6% |
| India | SENSEX Index | -0.4% |
| Indonesia | JCI Index | -2% |
| Malaysia | FBMKLCI Index | -0.2% |
| Pakistan | KSE100 Index | 4.4% |
| Philippines | PCOMP Index | 0.4% |
| South Korea | KOSPI Index | -0.6% |
| Taiwan | TWSE Index | -0.5% |
| Thailand | SET Index | -1.6% |
| Singapore | STI Index | -0.8% |
| Australia | AS51 Index | 0.2% |
| Vietnam | VNINDEX Index | -0.2% |
| Indicator | Hong Kong | Mainland |
|---|---|---|
| Today's Volume % of 1-Year Average | 169% | 154% |
| Advancing Stocks | 92 | 1807 |
| Declining Stocks | 401 | 3180 |
| Outperforming Factors | Dividend Yield | Dividend Yield, Value, Low Volatility |
| Underperforming Factors | Momentum, Liquidity, EPS Revision | Momentum, Liquidity, Growth |
| Top Sectors | Financials, Utilities | Staples, Financials, Energy |
| Bottom Sectors | Materials, Healthcare, Communication | Tech, Materials, Healthcare |
| Top Subsectors | Banks, Consumer Durables, Telecom | Insurance, Coal, Banking |
| Bottom Subsectors | Semis, Non Ferrous Metals, National Defense | Computer Hardware, Communication Equipment, Semis |
| Southbound Connect Buys | Xiaomi, HS Tech ETF (Large), Tencent, XtalPi (Moderate) | |
| Southbound Connect Sells | SMIC (Large), Alibaba, ZTE (Moderate), Hua Hong Semis, Kuiashou (Small) |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 152 | -2.22 |
| Communication Services | 9 | -3.14 |
| Consumer Discretionary | 28 | -2.96 |
| Consumer Staples | 13 | -1.55 |
| Energy | 6 | -0.56 |
| Financials | 24 | 1.53 |
| Health Care | 12 | -4.88 |
| Industrials | 21 | -0.85 |
| Information Technology | 10 | -2.54 |
| Materials | 10 | -5.49 |
| Real Estate | 7 | -1.29 |
| Utilities | 12 | 0.25 |
| Mainland China Listed | 395 | -1.25 |
| Communication Services | 7 | -1.5 |
| Consumer Discretionary | 29 | -0.74 |
| Consumer Staples | 24 | 1.55 |
| Energy | 13 | 1.5 |
| Financials | 64 | 1.5 |
| Health Care | 32 | -2.09 |
| Industrials | 61 | -1.77 |
| Information Technology | 90 | -4.63 |
| Materials | 54 | -2.87 |
| Real Estate | 6 | -0.7 |
| Utilities | 15 | 0.67 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | -2.8 |
| Alibaba HK | 9988 HK Equity | -4.3 |
| JD.com HK | 9618 HK Equity | -0.5 |
| NetEase HK | 9999 HK Equity | -2.9 |
| Yum China HK | 9987 HK Equity | -2.2 |
| Baozun HK | 9991 HK Equity | -2.8 |
| Baidu HK | 9888 HK Equity | -5.4 |
| Autohome HK | 2518 HK Equity | -3.1 |
| Bilibili HK | 9626 HK Equity | -7 |
| Trip.com HK | 9961 HK Equity | -2.8 |
| EDU HK | 9901 HK Equity | -0.1 |
| Xpeng HK | 9868 HK Equity | -2 |
| Weibo HK | 9898 HK Equity | -3.9 |
| Li Auto HK | 2015 HK Equity | -2.5 |
| Nio Auto HK | 9866 HK Equity | -3.5 |
| Zhihu HK | 2390 HK Equity | -1 |
| KE HK | 2423 HK Equity | -1.3 |
| Tencent Music Entertainment HK | 1698 HK Equity | -0.6 |
| Meituan HK | 3690 HK Equity | -1.5 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ALIBABA GROUP HOLDING LTD | -4.3 |
| TENCENT HOLDINGS LTD | -2.8 |
| SEMICONDUCTOR MANUFACTURI-H | -8.5 |
| XIAOMI CORP-CLASS B | -0.9 |
| HUA HONG SEMICONDUCTOR LTD-H | -13.1 |
| KUAISHOU TECHNOLOGY | -6.8 |
| MEITUAN-CLASS B | -1.5 |
| HONG KONG EXCHANGES & CLEAR | -3 |
| ZIJIN MINING GROUP CO LTD-H | -6.5 |
| POP MART INTERNATIONAL GROUP | 0.8 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| CHINA NORTHERN RARE EARTH -A | -1.6 |
| EOPTOLINK TECHNOLOGY INC L-A | -9.2 |
| ZTE CORP-A | -6.5 |
| ZHONGJI INNOLIGHT CO LTD-A | -8.2 |
| CONTEMPORARY AMPEREX TECHN-A | -4.4 |
| SEMICONDUCTOR MANUFACTURIN-A | -6.8 |
| ZIJIN MINING GROUP CO LTD-A | -5.8 |
| INNER MONGOLIA BAOTOU STE-A | 4.3 |
| SUNGROW POWER SUPPLY CO LT-A | -1 |
| LUXSHARE PRECISION INDUSTR-A | -4.7 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 7.14 versus 7.13 yesterday
- CNY per EUR 8.25 versus 8.25 yesterday
- Yield on 10-Year Government Bond 1.84% versus 1.84% yesterday
- Yield on 10-Year China Development Bank Bond 1.94% versus 1.95% yesterday
- Copper Price +1.06%
- Steel Price -0.84%
