Week in Review

• Asian equities were mostly lower this week as the Bank of Japan’s (BOJ) rate hike coupled with weaker-than-expected US economic data shocked global markets, though Hong Kong outperformed the region with a positive return.
• Yum China Holdings reported Q2 financial results on Tuesday: adjusted net income increased by +7% year over year, while earnings per share increased by +17%.
• China reported mixed July trade data on Wednesday as exports missed expectations and imports exceeded expectations, a small sign of a healthier consumer.
• Shenzhen followed up on the Third Plenum policy priority of creating more affordable housing as a state-owned-enterprise (SOE) in the city began buying apartment buildings to convert.

Friday’s Key News

Asian equities ended the week on a high note as yesterday’s US economic data tempered hard-landing fears as Asian currencies rallied versus the US dollar.

Would you believe that the Yen is at the same price as last Friday? The Yen is off from its high on July 3rd of 161, which makes me wonder whether we are out of the volatility woods yet, despite markets giving a “What, me, worry?” attitude.

The main economic headline was China’s July CPI of 0.5%, which beat estimates of 0.3% and June’s 0.2%. Meanwhile, the producer price index (PPI) was down -0.8% year-over-year versus expectations of -0.9% and June’s -0.8%. Deflation worries, especially related to the consumer, have weighed on sentiment, so today’s data was a small step in the right direction.

After the close, the People’s Bank of China (PBOC), China’s central bank, held a press conference reiterating that they will trade government bonds in the secondary market to combat the huge demand from retail investors driven by a lack of Mainland animal spirits. The PBOC acknowledged the economic challenges in a good sign and stands ready with further monetary support.

The State Council’s Information Office press conference on “Promoting High-quality Development of Service Consumption” received no coverage from regional media or trading desks. As our trader friend Dave says “Market no care, you no care” though I want to highlight a few positives as the conference was a follow up to the State Council’s “20 key tasks” that will be implemented to boost the economy.

Officials from the Ministry of Commerce (MoC), National Development and Reform Commission (NDRC), Ministry of Civil Affairs, and Ministry of Culture and Tourism attended the press conference. Remember, the Third Plenum identifies problems and provides high-level solutions, though it does not solve them, as implementation takes place in underlying government agencies.  

State Council Press Release Highlights:

• The State Council has designated 2024 the “Year of Consumption Promotion” following their July 30^th meeting that “emphasized the need to expand domestic demand with a focus on boosting consumption, and the focus of economic policies should be shifted more to benefiting people's livelihood and promoting consumption.”
• “In the first half of this year, the country's service consumption expenditure accounted for 45.6% of per capita consumption expenditure, an increase of 1.1 percentage points year-on-year.”
• “….the urbanization rate of the country's permanent population reached 66.2%, and it is still in a period of rapid urbanization.”
• Focus on “key service consumption areas such as catering and accommodation, domestic services, and elderly care and childcare.”
• Issuing “consumer vouchers” to boost consumption was mentioned in relation to domestic tourism.
• “…the catering industry is also the largest category in the total retail sales of consumer goods,…The national catering revenue was 5.29 trillion yuan, a record high, an increase of 20.4% year-on-year, and the contribution rate to the growth of total retail sales of consumer goods reached 28.2%. In the first half of this year, the national catering revenue reached 2.6 trillion yuan, an increase of 7.9% year-on-year.”. Catering means restaurants. Clearly Chinese people like to eat and eat out!

Beneficiaries IMO: domestic travel, i.e. Trip.com, restaurants/catering i.e. Meituan, elderly = healthcare. I assume there are more consumption-related policies coming.

Hong Kong had a good day though closed off intra-day highs, failing to match the strong performance of US-listed China stocks yesterday. Growth stocks andsectors had a strong day as autos and the electric vehicle (EV) ecosystem outperformed on July auto sales decreasing month over month and year over year but 43% of July auto sales were EV/hybrid up from June’s 41% leading to BYD gaining +3.18%, Li Auto gaining +5.45%, Xpeng gaining +3.57%, and NIO gaining +3.1%. Mainland China and the EU’s EV tit-for-tat escalated as China filed a complaint with the World Trade Organization (WTO).

Real estate was the top-performing sector in Mainland China, where it gained +1.17%, and in Hong Kong, where it gained +2.37%, on Shenzhen’s affordable housing news that we covered yesterday.

Hong Kong’s most heavily traded stocks by value were Tencent, which gained +0.49% on the 12th consecutive day of mainland buying via Southbound Stock Connect (18 of the last 19 days), China Mobile, which, following  yesterday’s after-the-close financial results, fell -1.31%, Alibaba, which gained +1.7%, Meituan, which gained +1.53%, and energy giant CNOOC, which gained +1.32%. Hua Hong Semiconductor fell -6.22% and Semiconductor Manufacturing International (SMIC) gained +4.94% following yesterday’s after-the-close results.

The Mainland market had the lowest volume in a year on small losses as the National Team had another day off based on their favorite ETFs’ light volumes. Mega-caps in financials and energy were an oasis of green in otherwise sea of red.

Kweichow Moutai’s second quarter beat with the stock up +0.43%.

Bilibili will report 2nd Quarter financial results on August 22nd. Yesterday, I erroneously stated it was on August 16th. Thank you to Mary for pointing out my error. Please reach out anytime! As my wife would more than happen to explain in further and lengthy detail, I am far from perfect!

The Hang Seng and Hang Seng Tech indexes gained +1.17% and +2.08%, respectively, on volume that decreased -14.35% from yesterday, which is 86% of the 1-year average. 321 stocks advanced while 151 declined. Main Board short turnover declined -12.26% from yesterday, which is 81% 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 growth factor and large caps outperformed the value factor and small caps. All sectors were higher, led by Real Estate, which gained +2.38%, Materials, which gained +1.99%, and Technology, which gained +1.79%. The top-performing subsectors were autos, media, and technical hardware. Meanwhile, telecom, food & beverage, and pharmaceuticals were among the worst-performing. Southbound Stock Connect volumes light as Mainland investors bought a net $292 million of Hong Kong-listed stocks and ETFs, including Tencent, which was a moderate net buy, Hua Hong Semiconductor, which was a small net buy, and China Mobile, which was a small net sell.

Shanghai, Shenzhen, and the STAR Board fell -0.27%, -0.66%, and -0.48%, respectively, on volume that decreased -9% from yesterday, which is 70% of the 1-year average. 1,430 stocks advanced while 3,407 declined. The value factor and large caps “outperformed” (i.e. fell less than growth and small caps. Real Estate and Energy were the only positive sectors, up +1.17% and +0.51%, respectively. Meanwhile, Communication Services fell -2.24%, Health Care fell -1.50%, and Industrials fell -0.82%. The top-performing subsectors were real estate services, oil & gas, and motorcycles. Meanwhile, education, cultural media, and office supplies were among the worst-performing. Northbound Stock Connect volumes were light as foreign investors were net sellers of Mainland stocks, including Zijin Mining, Vanke, and Wuxi AppTec, which were small net buys. Meanwhile, NHU, Foxconn, and Will Semiconductor were small net sells. Treasury bonds fell. CNY and the Asia Dollar Index gained versus the US dollar. Copper was up while steel was flat.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.17 versus 7.17 yesterday


• CNY per EUR 7.83 versus 7.83 yesterday


• Yield on 10-Year Government Bond 2.20% versus 2.18% yesterday


• Yield on 10-Year China Development Bank Bond 2.26% versus 2.23% yesterday


• Copper Price: 0.68%


• Steel Price: 0.00%