Mainland China Growth Sectors Consolidate After Strong Run
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Key News
Asian equities were largely higher, except for Hong Kong and Mainland China, which underperformed. Pakistan was closed for Mawlid-al-Nab, celebrating the Prophet Muhammad’s birthday. A Bloomberg News article reported that Mainland regulators may curb the market’s recent enthusiasm, which was widely cited as the catalyst behind today’s selloff in growth stocks and related subsectors. Today was the third day with markets lower in a row, as the Mainland market worked off an overbought condition.
Mainland stocks, particularly those in growth subsectors or indices such as the STAR Market 50 Index, appear extended by looking at how far they are above their 50-day moving average or even broadly the percentage of stocks above their 50-day moving average. On August 22nd, a remarkably high 81% of stocks within the Shanghai Composite were above their 10-day moving average, and 92% were above their 50-day moving average. Today, that is down to 21% and 57%.
Mainland investors are allocating some of their bonds and cash to stocks, as evidenced by margin balances and new brokerage account openings. This flow isn’t going into the broad market but rather into a narrow subset of securities, which explains why the recent rush to the exits to take profits caused such a dramatic swoon, as the exit door is only so big. This is evident as the Mainland’s number of decliners barely outpaced advancers, though specific sub-sectors were routed, such as precious metals, metals & mining, technology hardware, software, and pharmaceuticals.
For example, the recent STAR Board high-flying semiconductor stock Cambricon was down by 14.45%, while the Mainland semiconductor sub-sector was down by 5.82%. However, it remains up +12.35% over the last twenty days. The Mainland communication equipment subsector tells a similar story, falling -8.31%, while remaining up +17.72% over the previous twenty days. Mainland banks outperformed as the National Team’s favored ETFs saw above-average volume, indicating that Chinese institutions were buying today, though sticking with mega and large caps and high dividend payers.
Hong Kong was not off nearly as much as Mainland China, though it was not immune to the downdraft in growth sectors, including healthcare and semiconductors, which were hit hard. Robotics maker UB Tech fell -0.87%, faring better than most, after announcing RMB 250 million in robot orders. Hong Kong was a net buy from Mainland China via Southbound Stock Connect.
Where do we go from here? I still firmly believe that global investors are underweight in China. Will they use this pullback to buy the dip? I hope so. The argument that the Mainland China rally since January 2024 has no economic support is not 100% accurate, as indicated by the recent purchasing managers' indexes (PMIs).
Will China's government provide more or less economic policy in the future? Obviously more. Ironically, doesn’t the new 5-Year Plan highlight the technology and growth subsectors that fell the most today? Ironically, after the close, DeepSeek announced it would release a new AI model that can compete with OpenAI by the end of the year. Today’s sellers might be tomorrow's buyers!
The big picture is that we are still in an uptrend, though we are overdue for a pullback. Consolidations are a good thing and healthy for a bull market.
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | -1.1% |
| Hang Seng Tech | HSTECH Index | -1.8% |
| Hong Kong Turnover | HKTurn Index | 12.9% |
| Hong Kong Short Sale Turnover | HKSST Index | 2% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 13.2% |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | 703.51 |
| China (Shanghai) | SHCOMP Index | -1.3% |
| China (Shenzhen) | SZCOMP Index | -2.1% |
| China (STAR Board) | Star50 Index | -6.1% |
| Mainland Turnover | .chturn Index | 7.7% |
| Northbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | Not Available |
| Jing Daily China Global Luxury Index | CHINALUX Index | -0.2% |
| Japan | NKY Index | 1.5% |
| India | SENSEX Index | 0.2% |
| Indonesia | JCI Index | -0.2% |
| Malaysia | FBMKLCI Index | 0% |
| Pakistan | KSE100 Index | 0.3% |
| Philippines | PCOMP Index | 0.4% |
| South Korea | KOSPI Index | 0.5% |
| Taiwan | TWSE Index | 0.3% |
| Thailand | SET Index | -0.5% |
| Singapore | STI Index | 0.2% |
| Australia | AS51 Index | 1% |
| Vietnam | VNINDEX Index | 0.9% |
| Indicator | Hong Kong | Mainland |
|---|---|---|
| Today's Volume % of 1-Year Average | 131 | 162 |
| Advancing Stocks | 125 | 2230 |
| Declining Stocks | 364 | 2746 |
| Outperforming Factors | ||
| Underperforming Factors | Momentum, EPS Revision, Liquidity | Momentum, EPS Revision, Liquidity |
| Top Sectors | Staples, Utilities | Energy, Utilities, Financials |
| Bottom Sectors | Healthcare, Materials, Tech | Tech, Healthcare, Materials |
| Top Subsectors | Consumer Staples Distribution, Household/Personal Products, Utilties | Retail, Daily Chemicals, Catering/Tourism |
| Bottom Subsectors | Semis, Pharmaceutical, Non Ferrous Metals | Communication Equipment, Semis, Computer Hardware |
| Southbound Connect Buys | UB Tech (Large), Alibaba, Horizon Robotics, Meituan, Xiaomi (Moderate) | N/A |
| Southbound Connect Sells | SMIC (Large), Hua Hong Semi, Tencent (Moderate) | N/A |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 152 | -1.43 |
| Communication Services | 9 | -0.91 |
| Consumer Discretionary | 28 | -1.85 |
| Consumer Staples | 13 | 0.74 |
| Energy | 6 | -0.72 |
| Financials | 24 | -0.75 |
| Health Care | 12 | -4.1 |
| Industrials | 21 | -0.85 |
| Information Technology | 10 | -2.23 |
| Materials | 10 | -4.07 |
| Real Estate | 7 | -0.35 |
| Utilities | 12 | 0.28 |
| Mainland China Listed | 395 | -1.89 |
| Communication Services | 7 | -0.93 |
| Consumer Discretionary | 29 | -1.31 |
| Consumer Staples | 24 | -0.31 |
| Energy | 13 | 0.37 |
| Financials | 64 | 0.3 |
| Health Care | 32 | -3.17 |
| Industrials | 61 | -0.67 |
| Information Technology | 90 | -6.01 |
| Materials | 54 | -3.05 |
| Real Estate | 6 | -1.4 |
| Utilities | 15 | 0.35 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | -1 |
| Alibaba HK | 9988 HK Equity | -3.2 |
| JD.com HK | 9618 HK Equity | -0.7 |
| NetEase HK | 9999 HK Equity | -1 |
| Yum China HK | 9987 HK Equity | 1.9 |
| Baozun HK | 9991 HK Equity | 9.5 |
| Baidu HK | 9888 HK Equity | 2.1 |
| Autohome HK | 2518 HK Equity | 5.3 |
| Bilibili HK | 9626 HK Equity | 0.1 |
| Trip.com HK | 9961 HK Equity | 0.7 |
| EDU HK | 9901 HK Equity | -0.4 |
| Xpeng HK | 9868 HK Equity | -2.4 |
| Weibo HK | 9898 HK Equity | 2.7 |
| Li Auto HK | 2015 HK Equity | 0.2 |
| Nio Auto HK | 9866 HK Equity | -6.4 |
| Zhihu HK | 2390 HK Equity | 2.4 |
| KE HK | 2423 HK Equity | 0.1 |
| Tencent Music Entertainment HK | 1698 HK Equity | 1.1 |
| Meituan HK | 3690 HK Equity | 0.9 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ALIBABA GROUP HOLDING LTD | -3.2 |
| SEMICONDUCTOR MANUFACTURI-H | -6.7 |
| TENCENT HOLDINGS LTD | -1 |
| BYD CO LTD-H | -3.2 |
| MEITUAN-CLASS B | 0.9 |
| XIAOMI CORP-CLASS B | -2.3 |
| HORIZON ROBOTICS INC | -6.6 |
| KUAISHOU TECHNOLOGY | -2.9 |
| UBTECH ROBOTICS CORP LTD-H | -0.9 |
| SENSETIME GROUP INC-CLASS B | -6.3 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ZHONGJI INNOLIGHT CO LTD-A | -13.4 |
| EOPTOLINK TECHNOLOGY INC L-A | -15.6 |
| CAMBRICON TECHNOLOGIES-A | -14.4 |
| CONTEMPORARY AMPEREX TECHN-A | -1.6 |
| SUNGROW POWER SUPPLY CO LT-A | 1 |
| EAST MONEY INFORMATION CO-A | -1.6 |
| VICTORY GIANT TECHNOLOGY -A | -8.8 |
| CHINA NORTHERN RARE EARTH -A | -7.8 |
| FOXCONN INDUSTRIAL INTERNE-A | -2 |
| WOLONG ELECTRIC GROUP CO L-A | -6.1 |
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.13 versus 7.14 yesterday
- CNY per EUR 8.32 versus 8.32 yesterday
- Yield on 10-Year Government Bond 1.81% versus 1.80% yesterday
- Yield on 10-Year China Development Bank Bond 1.87% versus 1.86% yesterday
- Copper Price -0.25%
- Steel Price -0.29%
