Key News

Asian equities had a good day as China and Hong Kong outperformed following President Biden and Xi’s positive get-together in Bali along with continued support for the real estate sector. 

Hong Kong internet stocks ripped higher led by Hong Kong’s most heavily traded by value Tencent +10.51%, Alibaba HK +11.05%, and Meituan +6.33%. Post Party Congress it is back to business for the Chinese government as several significant issues are being dealt with now that government jobs have been secured for the next five years: US-China Political relations, zero-COVID policy and real estate. The resumption of communication between the US and China is a very important step with a follow up meeting by Secretary of State Blinken whose visit to China is in the works. Taiwan, Ukraine, and Russia discussions are also significant. COVID is all over China as 1,621 new COVID cases and 16,151 asymptomatic cases were reported. Despite this we aren’t seeing significant lockdowns as dynamic zero-COVID eases restrictive policies.   

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We are also seeing significant support to distressed property developers. These issues have weighed significantly on foreign investor sentiment and domestic consumption in China. One remaining issue, the Holding Foreign Companies Accountable Act (HFCAA)/ADR delisting, could be positively resolved based on the Biden Xi meeting. 

We had a very strong day in Hong Kong with all sectors positive and short turnover falling to 15% of total turnover. Obviously, a positive resolution to HFCAA would be another significant catalyst though we also have Q3 earnings with Tencent reporting tomorrow after the Hong Kong close, along with Alibaba and NetEase Thursday, and JD.com Friday.  Forward-looking Q4 forecasts will be important as the companies speak to how dynamic zero-COVID could raise domestic consumption more so than backward-looking Q3 results. The market didn’t care at all about today’s backward-looking economic data as October retail sales, industrial production, and fixed asset investments all missed expectations by small increments. The past doesn’t matter rather the future. 

Mainland China had a good day as semiconductor stocks were the top sub-sector on the US-China political talks.  Mega/large cap growth stocks that are favorites of both domestic and foreign active managers led the market higher with China’s most heavily traded liquor giant Kweichow Moutai +3.59%, broker East Money +5.36%, and EV battery giant CATL +2.32%. Foreign investors bought a healthy $1.157 billion of Mainland stocks today following yesterday’s $2.349 billion of net buying, and Friday’s $2.066 billion of net buying. Treasury bonds sold off on the stock enthusiasm while CNY gained +0.47% versus the US dollar to close at 7.04. Post Hong Kong/pre-US market, Tencent Music Entertainment (TME US, 1698 HK) beat revenue and adjusted net income estimates though adjusted EPS did miss slightly. 

The Hang Seng and Hang Seng Tech gained +4.11% and +7.3% respectively on volume +0.09% from yesterday which is 166% of the 1-year average. 447 stocks advanced while 62 declined. Main Board short turnover increased +7.14% from yesterday which is 146% of the 1-year average as 15% of turnover was short turnover. Value and growth factors were mixed as small caps outpaced large caps. All sectors were positive as communication finished higher +9.96%, discretionary gained +7.76%, and tech closed up +5.2%. Top sub-sectors were software, retailers, and semis.  Southbound Stock Connect volumes were 2X the average as Mainland investors bought +$32 million of Hong Kong stocks today with Tencent a small net buy after yesterday’s large net buy, Kuaishou was a small net sell, and Meituan was a moderate net sell.

Shanghai, Shenzhen, and STAR Board gained +1.64%, +2.05%, and +2.85% respectively on volume -1.16% from yesterday which is 109% of the 1-year average. 4,045 stocks advanced while 578 stocks declined. Growth factors outpaced value factors while small caps outpaced large caps. All sectors were positive, led by tech closing higher +3.71%, staples up +2.26%, and utilities finishing +2.08%. Top sub-sectors were semis, electronic components, and office supplies while precious metals and transports were the only negative sub-sectors. Northbound Stock Connect volumes were moderate/high as foreign investors bought $1.157 billion of Mainland stocks. Chinese Treasury bonds sold off, CNY gained +0.47% versus the US dollar to close at 7.04, while copper finished lower -0.9%.  

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.04 versus 7.07 yesterday
• CNY per EUR 7.33 versus 7.29 yesterday
• Yield on 10-Year Government Bond 2.81% versus 2.84% yesterday
• Yield on 10-Year China Development Bank Bond 2.96% versus 2.97% yesterday
• Copper Price -0.90% overnight