Rotate! From Zero To Hero
5 Min. Read Time
Key News
Asian equities were mixed overnight as Hong Kong, and, by extension, Stock Connect, was closed in observance of the Special Administrative Region Establishment Day.
Yesterday, our internal office discussion was on whether or not Asia will follow the US’ equity market rotation away from a small number of AI winners. Asia’s AI "picks & shovels", i.e., the momentum trade in technology hardware stocks, has performed exceedingly well this year, as US hyperscalers’ capital expenditure (CapEx) has endeed up on their income statements. This trade gets a lot of attention, due to Korea’s SK Hynix, which is up +291% year-to-date (YTD) and Samsung, which is up +162% YTD. Meanwhile, Taiwan’s TSMC is up +62% YTD, Japan’s Softbank is up +219% YTD, and Japan's Kioxia is up +744% YTD.
Mainland China and Hong Kong-listed technology hardware companies have similarly been beneficiaries of increased hyperscaler CapEx. While these stocks steal the sunshine of investors’ attention, the vast majority of the market is underperforming, especially China's internet stocks, despite being key nodes in China's AI ecosystem.
In the US, we are now seeing the small-cap Russell 2000 and equal-weighted S&P 500 actually outperforming their large cap and market cap-weighted counterparts. Is the market telling us something about US hyperscalers' end-of-July financial results? Or, maybe, it is simply the market rotating from momentum to a broadening-out or mean-reversion trade? We will discuss this and dive into the data in our upcoming webinar. Stay tuned for details!
Coincidentally, overnight, the mean reversion and market rotation trade occurred in Korea as the Kospi was down -2.04%, though remains up +82% YTD, while Korea’s Kosdaq, which is broader, was up +1.44%, though remains down -6.89%. India was up overnight, though remains down -13.31% YTD. In Mainland China, the worst-performing sub-sectors overnight happened to be the YTD best performers, while the worst-performing YTD sub-sectors were the best-performing overnight! This looks like a rotation to me!
Education was the top sub-sector, up +5.51% (-29% YTD), followed by insurance up +4.88% (-23% YTD) and pharmaceuticals up +4.82% (-8% YTD). Today’s worst performers are the YTD winners as semiconductor stocks fell -1.83% (+88% YTD), electronic components fell -1.87% (+67% YTD), communication equipment fell by -4.12% (+63% YTD), and computer hardware -2.73% (+47% YTD). Semiconductor stocks weighed on the Science and Technology (STAR) Board, which fell -2.48%, while Shanghai outperformed.
Auto stocks rose by +1.00% overall, though remain down -28% YTD. June auto sales were led by BYD, which gained +1.2% on a sales increase of +5.46% to 403,472 units sold, led by overseas sales, which increased +94% year-over-year (YoY) to 175,349, though domestic sales declined -22% YoY to 228,123. According to CNevPost, “Leapmotor, NIO, and Xpeng each set their highest monthly delivery records so far this year in June.” The Ministry of Industry and Information Technology (MIIT) and seven other government agencies issued "Implementation Opinions on Promoting the High-Quality Development of the Industrial Internet," including efforts to build 50,000 5G networks. President Xi gave a speech on the 105th anniversary of the CPC.
Could Q2 E-Commerce financial results pick up? A Mainland media source noted that the recent 619 E-Commerce sales event “moving decisively away from price-driven competition toward margin protection”. Fingers crossed!
The “private” RatingDog Manufacturing PMI survey, conducted by S&P, for June was 51.7 versus May’s 51.8 and expectations of 52, led by output and new orders.
Baidu’s Kunlunxin semiconductor unit, which is likely to go public later this year, announced that its chips power Baidu’s Wenxin 5.1, the company’s AI LLM, and “nearly” 100 external corporate clients consistently buy its chips.
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | Closed |
| Hang Seng Tech | HSTECH Index | Closed |
| Hong Kong Turnover | HKTurn Index | Closed |
| Hong Kong Short Sale Turnover | HKSST Index | Closed |
| Short Turnover as a % of Hong Kong Turnover | N/A | Closed |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | Closed |
| China (Shanghai) | SHCOMP Index | 0.4% |
| China (Shenzhen) | SZCOMP Index | 0.4% |
| China (STAR Board) | Star50 Index | -2.5% |
| Mainland Turnover | .chturn Index | 11.9% |
| Japan | NKY Index | 0.6% |
| India | SENSEX Index | 0.6% |
| Indonesia | JCI Index | 0.9% |
| Malaysia | FBMKLCI Index | -0.4% |
| Pakistan | KSE100 Index | 2.3% |
| Philippines | PCOMP Index | 0.5% |
| South Korea | KOSPI Index | -2% |
| Taiwan | TWSE Index | 1.9% |
| Thailand | SET Index | -0.2% |
| Singapore | STI Index | -0.2% |
| Australia | AS51 Index | -0.6% |
| Vietnam | VNINDEX Index | 0.4% |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | Closed | 154 |
| Advancing Stocks | Closed | 3997 |
| Declining Stocks | Closed | 1093 |
| Outperforming Factors | Closed | Value, Buybacks, Dividend Yield |
| Underperforming Factors | Closed | Momentum, Liquidity, Large Caps |
| Top Sectors | Closed | Healthcare, Financials, Real Estate |
| Bottom Sectors | Closed | Tech, Industrials |
| Top Subsectors | Closed | Education, Insurance, Pharmaceutical |
| Bottom Subsectors | Closed | Communication Equipment, Computer Hardware, Electric Power Grid |
| Southbound Connect Buys | Closed | N/A |
| Southbound Connect Sells | Closed | N/A |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 165 | Closed |
| Communication Services | 11 | Closed |
| Consumer Discretionary | 28 | Closed |
| Consumer Staples | 13 | Closed |
| Energy | 6 | Closed |
| Financials | 25 | Closed |
| Health Care | 16 | Closed |
| Industrials | 22 | Closed |
| Information Technology | 12 | Closed |
| Materials | 14 | Closed |
| Real Estate | 7 | Closed |
| Utilities | 11 | Closed |
| Mainland China Listed | 386 | -0.53 |
| Communication Services | 8 | 0.44 |
| Consumer Discretionary | 26 | 0.76 |
| Consumer Staples | 19 | 1.49 |
| Energy | 12 | 0.32 |
| Financials | 64 | 2.33 |
| Health Care | 31 | 4.08 |
| Industrials | 58 | -1.38 |
| Information Technology | 95 | -2.95 |
| Materials | 52 | 0.62 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | 2.3 |
| Alibaba HK | 9988 HK Equity | -0.2 |
| JD.com HK | 9618 HK Equity | 0.3 |
| NetEase HK | 9999 HK Equity | 1.5 |
| Yum China HK | 9987 HK Equity | -0.4 |
| Baozun HK | 9991 HK Equity | -0.4 |
| Baidu HK | 9888 HK Equity | 5.1 |
| Autohome HK | 2518 HK Equity | 0 |
| Bilibili HK | 9626 HK Equity | 0 |
| Trip.com HK | 9961 HK Equity | -3.6 |
| EDU HK | 9901 HK Equity | -1.7 |
| Xpeng HK | 9868 HK Equity | 6.9 |
| Weibo HK | 9898 HK Equity | 0.2 |
| Li Auto HK | 2015 HK Equity | 0.4 |
| Nio Auto HK | 9866 HK Equity | 1.4 |
| Zhihu HK | 2390 HK Equity | -0.7 |
| KE HK | 2423 HK Equity | -0.1 |
| Tencent Music Entertainment HK | 1698 HK Equity | 0 |
| Meituan HK | 3690 HK Equity | 1.3 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| VISUAL CHINA GROUP CO LTD-A | 2.1 |
| SHANTUI CONSTRUCTION MACHI-A | -1.1 |
| GIGADEVICE SEMICONDUCTO-CL A | -5.3 |
| BOE TECHNOLOGY GROUP CO LT-A | 1 |
| ZHONGJI INNOLIGHT CO LTD-A | -3.7 |
| EOPTOLINK TECHNOLOGY INC L-A | -5.2 |
| MONTAGE TECHNOLOGY CO LTD-A | 1.9 |
| JCET GROUP CO LTD-A | 3 |
| SUNGROW POWER SUPPLY CO LT-A | -13.9 |
| JIANGSU ZHONGTIAN TECHNOLO-A | -8.7 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.79 versus 6.78 yesterday
- CNY per EUR 7.74 versus 7.73 yesterday
- Yield on 10-Year Government Bond 1.74% versus 1.73% yesterday
- Yield on 10-Year China Development Bank Bond 1.82% versus 1.79% yesterday
- Copper Price -0.04%
- Steel Price -0.36%
