Key News

Asian equities were mixed overnight, though the most significant event was Taiwan Semiconductor's blowout earnings beat after the close.

Every couple has stated to their spouse at one point, “I do everything!” concerning the division of labor/chores. The top echelon of the Chinese government must feel that way as yet another government agency press conference failed to meet expectations that might have been too high, leaving investors underwhelmed and disappointed. The full notes are below, but the only meaningful data is that 1 million homes will be renovated, loan amounts dedicated to the “white list,” real estate projects deemed too big to fail/too important to fail, will be doubled from the current amount of RMB 2.23 trillion by year-end and specifically mentioned support for housing support for families with two or more children. Also reiterated was the RMB 150B returned to households through the 0.5% mortgage refinancing.

The Hang Seng, Shanghai, and Shenzhen were up +2.45%, +1.21%, and +1.59% in morning trading, but fell as it was clear further details on housing support weren’t coming as markets rolled over in afternoon trading to close near intra-day lows. Based on the light volumes, small pullback, and lack of significant selling, markets have realized that implementation details won’t come until the upcoming National People's Congress (NPC) meeting.

Rumors that the NPC will be delayed until after the US election make no sense to me as the domestic economy needs attention, also a delay could be viewed as a sign of weakness. A Mainland media article noted that the market’s recent pullback provides investors with a good entry point, insinuating that more good news is coming based on the “unprecedented” policy coordination amongst government agencies—no real reason to panic, as we just need to be patient.

Real estate was the worst-performing sector in both Hong Kong and Mainland China, as traders took profits though distress developer Suanc fell -27% after issuing 489 million new shares on the stock’s rebound. That is good for bondholders, though not so much for stockholders. Mainland investors bought the Hong Kong dip with a healthy $1.075B of net buying of Hong Kong stocks today with Alibaba, Xiaomi, and Tencent net buys.

Baidu reported that its founder and CEO, Robin Li, participated in Harvard Business Review’s Future of Business 2024 virtual conference, stating we are “currently witnessing an “inevitable” bubble in the AI sector, similar to the dot-com boom of the late 1990s.” First movers like Baidu with its ERNIE Bot are apt to be the winners. He compared today’s AI revolution to “the industrial revolution for inspiration where a lot of old jobs were displaced, but even more new jobs were created.” I’ll have to check out the full video! It is worth noting that two pandas arrived from China in Washington, DC, on their way to the zoo via a FedEx plane. Panda diplomacy is a small positive despite the economically detached from reality campaign rhetoric.

Full notes from today’s press conference

• Ministry of Housing and Urban-Rural Department: renovate 1mm urban/village homes, RMB 4 trillion dedicated to “white list”/real estate projects deemed too big to fail/too necessary to fail, home buying picking up, support families with two or more children, protection homebuyers during liquidation/bankruptcy of real estate projects
• Ministry of Finance: local governments will utilize special bonds for affordable housing, adjust VAT regarding real estate
• Ministry of Natural Resources: proceeds of special bonds used to buy projects and land
• PBOC: mortgage refinancing by 0.5% will save RMB 150B, which will benefit 50mm households and 150mm residents; refinancing will be completed by 10/26
• State Administration for Financial Regulation: thus far, RMB 2.23 trillion of loans have been dedicated to the “white list,” though that will double by year-end to over RMB 4 trillion, optimize loan allocation

The Hang Seng and Hang Seng Tech indexes fell -1.02% and -1.19%, respectively, on volume that declined -8% from yesterday, which is 161% of the 1-year average. 90 stocks advanced, while 403 stocks declined. Main Board short turnover decreased -2.36% from yesterday, which is 109% of the 1-year average, as 11% 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 fell less than the value factor and small caps. Technology was the only positive sector, up +0.64%, while Real Estate fell -7.84%, Materials fell -2.1%, and Energy fell -1.82%, to make up the worst-performing sectors. Technical hardware was the only positive subsector, while real estate services, media, and food & beverage were among the worst-performing. Southbound Stock Connect volumes were high/2X normal as Mainland investors bought $1.1 billion worth of Hong Kong-listed stocks and ETFs, including Xiaomi and Tencent, which were small net buys, and Alibaba and Sunac, which were large net buys.

Shanghai, Shenzhen, and the STAR Board diverged to close -1.05%, -0.56%, and +0.39% on volume that increased +8.44% from yesterday, which is 178% of the 1-year average. 2,092 stocks advanced, while 2,877 declined. The growth factor and small caps fell less than value and large caps. Technology and Communication Services gained +0.44% and +0.11%, respectively, and were the only positive sectors. Meanwhile, the worst-performing sectors were Real Estate, which fell -6.85%, Consumer Staples, which fell -2.08%, and Materials, which fell -1.87%. The top-performing subsectors were computer hardware, software, and education. Meanwhile, real estate services, water, and household products were among the worst-performing. Northbound Stock Connect volumes were high, at 2X the average. The Asia Dollar Index fell versus the US dollar while CNY was flat. The Treasury bond curve steepened. Copper gained while and steel fell.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.12 versus 7.11 yesterday
• CNY per EUR 7.73 versus 7.74 yesterday
• Yield on 10-Year Government Bond 2.11% versus 2.13% yesterday
• Yield on 10-Year China Development Bank Bond 2.19% versus 2.22% yesterday
• Copper Price +0.20%
• Steel Price -2.16%