Politburo’s Consumption Focus Fuels Internet Rebound, Week In Review
7 Min. Read Time
Week in Review
- Asian equities were mixed but mostly higher for the week as Hong Kong and Vietnam outperformed, while Mainland China's STAR (Science & Technology) Market and Korea underperformed.
- The rotation out of year-to-date (YTD) outperformers in AI supply chain hardware, i.e. AI "picks and shovels", and into software names and other themes was on full display this week, leading Hong Kong's software-oriented market to outperform.
- The fourth-largest global memory and DRAM maker ChangXin Memory (CXMT) became the most valuable company in Mainland China overnight after its IPO gained 465% on Monday on China's STAR Market.
- Moonshot AI, the China-based model provider that competes heavily with Anthropic's Claude, completed a funding round this week valuing the privately-held company at $35 billion as it plans a potential Hong Kong IPO.
- I am back from my recent trip to Australia and Hong Kong. I would like to send a warm welcome to all our new subscribers in Australia!
Last Night's Performance
Asian equities were higher led by AI supply chain stocks overnight, as Korea rocketed higher, along with Taiwan, Japan, Hong Kong, and China’s STAR Board.
AI supply chain subsectors, i.e. semiconductors, semiconductor equipment, electronic equipment, and communication equipment, listed in Mainland China and Hong Kong had a strong day, along with Hong Kong-listed internet stocks. Strong gains were led by Hong Kong’s most heavily traded stock by value Alibaba, which gained +4.65%, on net purchases worth $157 million (HKD 1.2 billion) from Mainland investors via Southbound Stock Connect. Tencent, which gained a more modest +0.72%, was Hong Kong's second most heavily-traded stock by value. Remember, these are the top two stocks in the MSCI China Index, which consists of 80% Hong Kong-listed stocks. The Index is about 5% US-listed China stocks and 15% stocks listed in Shanghai and Shenzhen.
Yesterday’s Politburo readout was better than expected as hopes for consumer support. The inclusion of “expand domestic consumption” in the release was a good sign. This plays into the internet stocks, which likely benefited from a well-respected China equity strategist recommending Hong Kong-listed stocks, with an emphasis on internet stocks. I suspect that funds, which are underweight to Hong Kong from a very low base, were buyers, due to anticipated future consumption policies. Now that the Politburo’s message has been delivered from top of the government, government agencies will need to implement the directive. The National Development and Reform Commission (NDRC) did not waste time by stating today that they will focus on “expanding domestic demand”.
The Politburo release also included anti-involution, i.e. curbing excessive competition, as a priority, too. Is it a coincidence, then, that the State Administration for Market Regulation (SAMR) visited Yancheng City in Jiangsu Province overnight to conduct reviews on the solar industries’ “inward competition”? Mainland-listed solar production leaders Tongwei Solar and Trina Solar were lower overnight by -0.09% and -1.02%, respectively, despite being based in the city, as their revenues grow, though both companies remain unprofitable. Anti-involution efforts in solar have been very quiet, though both companies are shrinking losses in a small positive for long-suffering shareholders.
Xiaomi fell -7.28% on pricing concerns around their SUVs, according to Bloomberg.
Banks were weak in both markets overnight after strength yesterday, as lower rates are feasible, based on the Politburo release. Growth stocks ruled the day in both markets.
China's “official” purchasing managers' indexes (PMIs) for July were off slightly month-over-month. However, we did not see this as a factor in the market action, as forward-looking policies are more important.
President Xi published an article titled "Accelerating the Construction of a Healthy China” focused on “health and wellness”. Premier Li and the State Council held a meeting on the economy’s performance in the 1st half and 2nd half efforts. Vice Premier He Lifeng spoke with Treasury Secretary Bessent and US Trade Representative Greer.
While worth the effort, getting to Asia is not a trip. Rather, it is a journey. One podcast I listened to during the journey was Ezra Klein’s interview of former Australian Prime Minister Kevin Rudd, who is the current Asia Society head and a long-running China expert. While I’ve always respected Mr. Rudd’s insights, I was perplexed by the repeated portrayal of President Xi as a “Marxist Leninist” with a 1984 like control of China combined with Soviet Union-like global domination ambition while giving the impression China is about to invade Taiwan at any moment. Nothing was said about the local governments that have significant policy control on the local economy. The current domestic consumption weakness combined with strong exports of AI supply chain, vehicles, and other goods means China’s economy is more dependent on foreign buyers. While Putin had nothing to lose by invading Ukraine, China’s economy has everything to lose if they are kicked out of the global economy. To Klein’s credit, he pushes back on Rudd’s ultra-pessimistic views. In looking at the press release on Rudd’s appointment as CEO of the Asia Society, which hopefully he doesn’t change to the Indo-Pacific Society, he is going to run a think tank. Maybe he was looking to drum up new clients in Washington DC by reinforcing their "China as the bogeyman" fears?
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | 0.1% |
| Hang Seng Tech | HSTECH Index | 0.5% |
| Hong Kong Turnover | HKTurn Index | 7.6% |
| Hong Kong Short Sale Turnover | HKSST Index | -8% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 0.2 |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | -61.37 |
| China (Shanghai) | SHCOMP Index | 0.7% |
| China (Shenzhen) | SZCOMP Index | 2.3% |
| China (STAR Board) | Star50 Index | 3% |
| Mainland Turnover | .chturn Index | 8.5% |
| Japan | NKY Index | 4% |
| India | SENSEX Index | 0.2% |
| Indonesia | JCI Index | 0.8% |
| Malaysia | FBMKLCI Index | 0.3% |
| Pakistan | KSE100 Index | 0.4% |
| Philippines | PCOMP Index | -1.1% |
| South Korea | KOSPI Index | 17.9% |
| Taiwan | TWSE Index | 8% |
| Thailand | SET Index | 1.6% |
| Singapore | STI Index | -0.8% |
| Australia | AS51 Index | 0.1% |
| Vietnam | VNINDEX Index | 0.0% |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | 119 | 101 |
| Advancing Stocks | 262 | 4354 |
| Declining Stocks | 250 | 678 |
| Outperforming Factors | Growth, Liquidity, Momentum | Liquidity, Momentum, Growth |
| Underperforming Factors | Dividend Yield, Low Volatility, Value | Low Volatility, Dividend Yield, Value |
| Top Sectors | Materials, Discretionary, Communication | Communication, Tech, Materials |
| Bottom Sectors | Staples, Real Estate, Energy | Financials, Staples, Utilities |
| Top Subsectors | Semis, HK Machinery, Tech Hardware | Internet, Cultural Media, Software |
| Bottom Subsectors | Food/Beverage, Household/Personal Products, Petroleum/Petrochemical | Banking, Insurance, Construction Machinery |
| Southbound Connect Buys | Alibaba, Tencent, Xiaomi (Large), Gigadevice (Moderate), KB Laminates (Small) | N/A |
| Southbound Connect Sells | Hua Hong Semi, SMIC, YOFC (Small) | N/A |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 165 | 0.35 |
| Communication Services | 11 | 0.94 |
| Consumer Discretionary | 28 | 1.82 |
| Consumer Staples | 13 | -2.5 |
| Energy | 6 | -1.32 |
| Financials | 25 | -1.09 |
| Health Care | 16 | 0.26 |
| Industrials | 22 | 0.46 |
| Information Technology | 12 | -1.27 |
| Materials | 14 | 1.85 |
| Real Estate | 7 | -1.4 |
| Utilities | 11 | -0.87 |
| Mainland China Listed | 386 | 1.1 |
| Communication Services | 8 | 4.98 |
| Consumer Discretionary | 26 | 0.6 |
| Consumer Staples | 19 | -0.84 |
| Energy | 12 | 0.44 |
| Financials | 64 | -0.98 |
| Health Care | 31 | 0.34 |
| Industrials | 58 | 0.23 |
| Information Technology | 95 | 4.01 |
| Materials | 52 | 0.84 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | 0.7 |
| Alibaba HK | 9988 HK Equity | 4.7 |
| JD.com HK | 9618 HK Equity | -1.2 |
| NetEase HK | 9999 HK Equity | 0.6 |
| Yum China HK | 9987 HK Equity | 1.9 |
| Baozun HK | 9991 HK Equity | 0.8 |
| Baidu HK | 9888 HK Equity | 3.7 |
| Autohome HK | 2518 HK Equity | 0.2 |
| Bilibili HK | 9626 HK Equity | -0.3 |
| Trip.com HK | 9961 HK Equity | -0.2 |
| EDU HK | 9901 HK Equity | -4.6 |
| Xpeng HK | 9868 HK Equity | 0.2 |
| Weibo HK | 9898 HK Equity | -1 |
| Li Auto HK | 2015 HK Equity | -1.6 |
| Nio Auto HK | 9866 HK Equity | 3.5 |
| Zhihu HK | 2390 HK Equity | -1.3 |
| KE HK | 2423 HK Equity | 0 |
| Tencent Music Entertainment HK | 1698 HK Equity | -0.6 |
| Meituan HK | 3690 HK Equity | -0.2 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ALIBABA GROUP HOLDING LTD | 4.7 |
| TENCENT HOLDINGS LTD | 0.7 |
| Z AI CO LTD | 14.6 |
| XIAOMI CORP-CLASS B | -7.3 |
| SEMICONDUCTOR MANUFACTURI-H | 2 |
| ZHONGJI INNOLIGHT CO LTD-H | 7.1 |
| HUA HONG GRACE SEMICONDUCTOR | 2.2 |
| GIGADEVICE SEMICONDUCTOR I-H | 7.2 |
| KINGBOARD LAMINATES HLDG LTD | 1 |
| MEITUAN-CLASS B | -0.2 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| ZHONGJI INNOLIGHT CO LTD-A | 4.4 |
| CXMT CORP | 2.1 |
| GIGADEVICE SEMICONDUCTO-CL A | 2 |
| EOPTOLINK TECHNOLOGY INC L-A | 6.7 |
| SUZHOU DONGSHAN PRECISION-A | 6 |
| CAMBRICON TECHNOLOGIES-A | 6.1 |
| SHENZHEN TECHWINSEMI TECHN-A | -1.1 |
| CHINA JUSHI CO LTD -A | 3.3 |
| CONTEMPORARY AMPEREX TECHN-A | -1.6 |
| UNISPLENDOUR CORP LTD-A | 3.8 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.75 versus 6.75 yesterday
- CNY per EUR 7.76 versus 7.79 yesterday
- Yield on 10-Year Government Bond 1.71% versus 1.72% yesterday
- Yield on 10-Year China Development Bank Bond 1.78% versus 1.79% yesterday
- Copper Price 0.74%
- Steel Price -0.46%
