Key News

In big breaking news, the PCAOB announced that it has secured complete access to inspect and investigate Chinese firms for the first time in history. This could be a major step towards resolving the Holding Foreign Companies Accountable Act (HFCAA).

We're reading and digesting the information as it comes in. Great job on both sides for working to resolve the issue; it illustrates that dialogue and communication is always the best path.

In regular market news, Asian equity markets were all down following Powell's hawkish press conference, as Hong Kong and India underperformed regionally. The Asia dollar index fell -0.5% while the global dollar index +0.46%.

Hong Kong was hit with a bout of selling as Hong Kong’s most heavily traded were Tencent -2.28%, Alibaba HK -4.02%, and Meituan -3.28%. Trip.com (TCOM, 9961 HK) +3.55% after reporting after the US close.

It was a quiet night from a news perspective; less November data dump, which included industrial production (2.2% vs. expectations of 3.5%) and retail sales (-5.9% versus expectations -4%) were below expectations as COVID runs rampant through China as COVID restrictions fall to the wayside. In a positive for e-commerce plays, online retail sales were +1.2% in November. Investors should be focused not on the rearview mirror but on looking out the windshield.

This week, the State Council statement tells us domestic consumption is where government policy is headed. The CEWC, China’s big economic conference, started today, providing the GDP target for 2023 but, more importantly, giving specific policies. I can not stress enough that DOMESTIC CONSUMPTION will be the key. Three global investment banks lowered Q4 GDP estimates but raised their 2023 GDP estimates more importantly. We are apt to see a GDP target at or above 5% from the Chinese government coming out of the CEWC. Today’s data only reinforces this against the backdrop of low inflation in China and plenty of dry powder, i.e., monetary and fiscal support. November real estate sales data were also weak -9.8% YTD versus expectations -9.2% and October’s 8.8%. Mainland China was mixed with growth sectors/stocks outperforming, as evidenced by the Shenzhen and STAR Board’s positive return. Foreign investors bought $708mm of Mainland stocks today with a preference for growth stocks.

Tomorrow is triple witching (futures and options expiration) and S&P, and FTSE Russell index rebalances. The Nasdaq 100 is removing Baidu and NetEase as they are no longer among the 100 largest companies listed on Nasdaq by market cap. The positions are not that big though indexes are notorious for buying high and selling low. Exhibit A: Remember the index that removed Tencent, Baidu, and Weibo on October 20, 2022. Ouch!

The Hang Seng and Hang Seng Tech fell -1.55% and -2.39% on volume -22.55%, which is 85% of the 1-year average. 91 stocks advanced, while 404 declined. Main Board short turnover fell -22.48%, which is 64% of the 1-year average, as 13% of turnover was short turnover. Value factors “outperformed” growth factors, while large caps “outperformed” small caps. The only positive sector was real estate +0.04%, while discretionary -2.86%, communication -2.39%, and healthcare -2.34%. Semis were up, while retailers, media, and software were among the worst performers. Southbound Stock Connect volumes were light as Mainland investors bought $244mm of Hong Kong stocks, with Tencent, Meituan, and Kuaishou all small net sells.

Shanghai, Shenzhen, and STAR Board were mixed -0.25%, +0.31%, and +0.51% on volume -5.22% from yesterday, which is 81% of the 1-year average. 2,656 stocks advanced, while 1,935 declined. Growth factors outperformed value factors, while small caps outperformed large caps. The top sectors were discretionary +0.76%, tech +0.72%, and industrials +0.39%, while energy -1.84%, communication -1.78%, and financials -1.46%. The top sub-sectors were auto parts, electric power, and motorcycles, while precious metals, food, and coal were among the worst. Northbound Stock Connect volumes were moderate as foreign investors bought $708mm of Mainland stocks. CNY fell versus the US dollar -0.25% to 6.96, Treasury bonds fell, and copper fell -0.77%.

Major City Mobility Tracker

COVID’s spread is impacting traffic and subway usage, as highlighted below.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.97 versus 6.95 yesterday
• CNY per EUR 7.40 versus 7.40 yesterday
• Yield on 10-Year Government Bond 2.88% versus 2.87% yesterday
• Yield on 10-Year China Development Bank Bond 3.03% versus 3.00% yesterday
• Copper Price -0.77%