Inflation & Consumption Tailwinds Lift Stocks
6 Min. Read Time
Key News
Asian equities rebounded today following last week’s AI bubble kerfuffle, as South Korea and Hong Kong outperformed.
Yes, the US government shutdown is a positive for the global economy and today marks the implementation of the Trump-Xi trade truce. Several Chinese government agencies announced implementation of the deal, including eliminating fees on US ships. Reuters is reporting that FBI Director Kash Patel was in China last week to discuss fentanyl precursors, while the New York Times is reporting that 13 chemicals that can be used in making the drug will require export licenses.
The big catalyst today was the “unexpected” increase in the consumer price index (CPI) in October: +0.2% year-over-year (YoY) versus September's -0.3% and expectations of -0.1%, based on 31 estimates submitted. The headline figure was driven higher by clothing prices, which increased +1.7% and medical care costs, which increased +1.4%, offsetting weakness in food, which declined -1.6%. We have discussed previously that the July announcement of anti-involution efforts on stopping excess supply and unproductive competition could snap China out of its deflationary spiral. It is far too early for a victory lap, but a small step in the right direction, as Consumer Staples and Consumer Discretionary stocks outperformed in both Hong Kong and Mainland China.
A strong day from China Tourism Group, which increased +15.34% on supportive policies toward Hainan Island. Another consumption tailwind came in the form of southwestern city Chongqing announcing 18 measures to support consumption, including auto sales. Unfortunately, there was no chatter about Singles Day on November 11th, though internet stocks had a strong day.
Hong Kong had a strong day, as every sector was positive, though volumes were a touch light. The producer price index (PPI) declined -2.1% versus September’s decline of -2.3% and expectations of -2.2%, based on 27 submissions from economists. This represented a broad decline across producer goods, as mining slumped -7.8%.
Mainland China had a strong day as well on firmer volumes. It was interesting that amongst the few laggards were semiconductors and technology hardware.
The Ministry of Industry and Information Technology (MIIT) held a press conference outlining efforts to “accelerate the cultivation of application scenarios in five key areas”. Those key areas are 5G, the “AI Plus” initiative, robots, industrial internet, and BeiDou, which is the China National Space Administration’s satellite-based navigation system.
After the Mainland close, the National Development & Reform Commission (NDRC) and the National Energy Administration both announced “Guiding Opinions on Promoting the Consumption and Regulation of New Energy”, outlining efforts to increase new energy output by 200 million kilowatts. The General Office of the State Council announced 13 policy initiatives focused on promoting private investment in industries including railway, the low-altitude economy (drones), and nuclear power.
Before the US market opened, online real estate company KE Holdings reported better-than-expected third quarter financial results. It is amazing that the company could grow its top-line revenue, considering how poorly Mainland real estate has been performing.
- Revenue increased +2.1% year-over-year (YoY) to RMB 23.1 billion ($3.2 billion) from RMB 22.6 billon, versus an analyst estimate of RMB 23.0 billion.
- Adjusted Net Income declined -27.8% to RMB 1.3 billion ($181 million) from RMB 1.8 billion, versus an analyst estimate of RMB 1.2 billion.
- Adjusted Earnings per Share (EPS) fell to RMB 1.1 from RMB 1.5, versus an analyst estimate of RMB 1.1
- The company purchased 145.1 million American Depositary Receipts (ADRs) for $2.3 billion through Q3, out of an approved $5 billion buyback
- The company has $7.8 billion worth of cash on the books
Last Night’s Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | 1.6% |
| Hang Seng Tech | HSTECH Index | 1.3% |
| Hong Kong Turnover | HKTurn Index | 2.5% |
| Hong Kong Short Sale Turnover | HKSST Index | -1% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 14.5% |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | 849.76 |
| China (Shanghai) | SHCOMP Index | 0.5% |
| China (Shenzhen) | SZCOMP Index | 0.4% |
| China (STAR Board) | Star50 Index | -0.6% |
| Mainland Turnover | .chturn Index | 8.9% |
| Northbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | Not Available |
| Jing Daily China Global Luxury Index | CHINALUX Index | 0.8% |
| Japan | NKY Index | 1.3% |
| India | SENSEX Index | 0.4% |
| Indonesia | JCI Index | 0% |
| Malaysia | FBMKLCI Index | 0.5% |
| Pakistan | KSE100 Index | 1.3% |
| Philippines | PCOMP Index | -1% |
| South Korea | KOSPI Index | 3% |
| Taiwan | TWSE Index | 0.8% |
| Thailand | SET Index | 0.3% |
| Singapore | STI Index | -0.1% |
| Australia | AS51 Index | 0.8% |
| Vietnam | VNINDEX Index | -1.2% |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume as % of 1-Year Average | 88 | 129 |
| Advancing Stocks | 401 | 3226 |
| Declining Stocks | 88 | 1806 |
| Outperforming Factors | Growth, EPS Revision, Quality | Low Volatility, Quality, Dividend Yield |
| Underperforming Factors | Real Estate, Staples, Discretionary | |
| Top Sectors | Real Estate, Staples, Discretionary | Staples, Healthcare, Discretionary |
| Bottom Sectors | Industrials, Tech | |
| Top Subsectors | Consumer Durables/Apparel, Consumer Services, Petroleum | Trade, Catering/Tourism, Liquor |
| Bottom Subsectors | Machinery, Electrical Equipment, Semis | Construction Machinery, Electrical Power Grid, Energy Equipment |
| Southbound Connect Buys | CNOOC (Large), Pop Mart (Moderate), Xiaomi (Small) | N/A |
| Southbound Connect Sells | Alibaba (Moderate), SMIC, Tencent (Small), China Tourism Group (Tiny) | N/A |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 151 | 1.93 |
| Communication Services | 9 | 2.21 |
| Consumer Discretionary | 28 | 2.26 |
| Consumer Staples | 13 | 2.91 |
| Energy | 7 | 2.23 |
| Financials | 23 | 1.76 |
| Health Care | 13 | 1.37 |
| Industrials | 20 | 0.74 |
| Information Technology | 10 | 0.24 |
| Materials | 10 | 1.34 |
| Real Estate | 6 | 3.63 |
| Utilities | 12 | 0.19 |
| Mainland China Listed | 404 | 0.45 |
| Communication Services | 6 | 0.64 |
| Consumer Discretionary | 31 | 1.16 |
| Consumer Staples | 24 | 3.05 |
| Energy | 13 | 0.78 |
| Financials | 64 | 0.93 |
| Health Care | 31 | 1.44 |
| Industrials | 64 | -1.1 |
| Information Technology | 91 | -0.7 |
| Materials | 58 | 1.08 |
| Real Estate | 6 | 0.55 |
| Utilities | 16 | 0.05 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | 2.4 |
| Alibaba HK | 9988 HK Equity | 2.1 |
| JD.com HK | 9618 HK Equity | 0.4 |
| NetEase HK | 9999 HK Equity | 0.3 |
| Yum China HK | 9987 HK Equity | 3.3 |
| Baozun HK | 9991 HK Equity | 1.7 |
| Baidu HK | 9888 HK Equity | 1.1 |
| Autohome HK | 2518 HK Equity | -0.4 |
| Bilibili HK | 9626 HK Equity | -0.3 |
| Trip.com HK | 9961 HK Equity | 2.7 |
| EDU HK | 9901 HK Equity | 3.6 |
| Xpeng HK | 9868 HK Equity | 1.2 |
| Weibo HK | 9898 HK Equity | 1.2 |
| Li Auto HK | 2015 HK Equity | 2.4 |
| Nio Auto HK | 9866 HK Equity | -2 |
| Zhihu HK | 2390 HK Equity | 0.8 |
| KE HK | 2423 HK Equity | 3.5 |
| Tencent Music Entertainment HK | 1698 HK Equity | -1.7 |
| Meituan HK | 3690 HK Equity | 1.3 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| TENCENT HOLDINGS LTD | 2.4 |
| ALIBABA GROUP HOLDING LTD | 2.1 |
| XIAOMI CORP-CLASS B | 0.3 |
| POP MART INTERNATIONAL GROUP | 8.1 |
| SEMICONDUCTOR MANUFACTURI-H | -1 |
| CNOOC LTD-H | 5.9 |
| BYD CO LTD-H | 4 |
| MEITUAN-CLASS B | 1.3 |
| PING AN INSURANCE GROUP CO-H | 2.2 |
| HUA HONG SEMICONDUCTOR LTD-H | -1.7 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| SUNGROW POWER SUPPLY CO LT-A | -3.5 |
| ZHONGJI INNOLIGHT CO LTD-A | 0 |
| TBEA CO LTD-A | -0.6 |
| EOPTOLINK TECHNOLOGY INC L-A | -3.9 |
| FOXCONN INDUSTRIAL INTERNE-A | -1.7 |
| VICTORY GIANT TECHNOLOGY -A | -3.2 |
| CAMBRICON TECHNOLOGIES-A | -2.9 |
| ZHEJIANG SANHUA INTELLIGEN-A | -6 |
| GUANGZHOU TINCI MATERIALS -A | 2.9 |
| SUZHOU TFC OPTICAL COMMUNI-A | 2.9 |
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.12 versus 7.12 yesterday
- CNY per EUR 8.23 versus 8.24 yesterday
- Yield on 10-Year Government Bond 1.81% versus 1.81% yesterday
- Yield on 10-Year China Development Bank Bond 1.88% versus 1.88% yesterday
- Copper Price 0.44%
- Steel Price -0.03%
