Hong Kong Closes Lower Amid Global Risk-Off
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Key News
Asian equities were a sea of red amid rising tensions in the Middle East, mixed interpretations of US earnings, and implications for AI spending. Thailand was closed for Chulalongkorn Day.
Today’s price action reminds me of early January 2024’s Hong Kong sell-off, as the market had been grinding lower, forcing out longs and leading to a final drop driven by warrants, bull-bear contracts, and structured products’ stop losses being triggered, leading to immediate liquidation with no buyers on the other side.
The Hang Seng sliced through 23,500 and 23,000, triggering the immediate liquidation of contracts at those levels, while Tencent (-2.89%) fell below $400 yesterday and Alibaba (-6.12%) fell below $100, another trigger level. Hong Kong had no positive sub-sectors and only 26 stocks finishing in the green. US-listed Chinese stocks were also down following the State Administration for Market Regulation (SAMR) meeting with E-Commerce companies about their responsibilities to counter counterfeit goods. The release wasn’t that bad, though they named the companies in attendance: “Representatives from online trading platforms such as JD.com, Taotian, Pinduoduo, Xiaohongshu, Kuaishou, Douyin, Duodian, Vipshop, and Dewu attended the meeting and exchanged views.” The extreme reaction to a fairly benign release (read for yourself here) shows how fragile investors are, i.e., say regulator and sell. It's easy to blame the Chinese government bureaucracy, though I believe there is more to it.
In addition to the mass liquidation of derivative instruments, I do wonder if today being the last day for offshore trusts to pay tax could have been a factor as onshore investors sell offshore stocks. Hard to know. Also not helping is that many Hong Kong stocks are in their quiet period before Q3 results, which means they can’t refute headlines or buy back stock. Mainland investors were net sellers of Hong Kong in size, selling $1.175 billion, though they did buy Tencent. Mainland China and Hong Kong’s AI supply chain sub-sectors (semiconductor, semiconductor equipment, electronic components, and electrical equipment) were hit very hard in both markets.
China's "National Team", i.e., investment firms associated with sovereign wealth, tried to support the market by buying, but they didn’t start until 1 hour before the market closed, i.e., too little, too late. Three ETFs had volumes of 3.541 billion, 2.396 billion, and 2.456 billion, versus their 30-day volume average of 908 million, 652 million, and 171 million. Big banks, telecommunications, and other mega-caps held up alright.
Unitree gained +0.97% after its CEO made positive comments about AI expediting robot rollout. Regardless, it was a brutal day, though hopefully we see the rebound that followed in early January 2024.
Baidu held its pre-quiet-period call with analysts yesterday, similar to those of Alibaba (cloud growth +40% YoY) and Tencent (net income may go negative due to AI capex). While its historical core search and advertising revenue is expected to decline (again), cloud and AI revenue is expected to accelerate rapidly (+90%). While Baidu’s revenue mix has shifted dramatically from search to AI, another factor will be clarity on the spin-off of its Kunlun AI chip unit.
The only Hong Kong stock buybacks that took place today and were announced after the close were Tencent's.
Last Night's Performance
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.67 versus 6.67 yesterday
- CNY per EUR 7.47 versus 7.49 yesterday
- Yield on 10-Year Government Bond 1.64% versus 1.64% yesterday
- Yield on 10-Year China Development Bank Bond 1.67% versus 1.68% yesterday
- Copper Price -0.82%
- Steel Price -0.52%
