SK Hynix Leads Korea Lower As AI Picks & Shovels Stocks Fall Across Asia
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Key News
Asian equities were lower as a confluence of issues, including Micron’s upcoming financial results, the potential for higher US rates, and concerns about Korea’s rally, triggered a rush to lock in profits.
Korea’s KOSPI closed lower by -9.99%, but is still up +83% year-to-date, led by SK Hynix, which fell -12.47%, and Samsung, which fell -12.31%. Japan’s Nikkei also closed lower by -3.55%, led by Softbank, which was down by -10.09%, and Kioxia, which was down by -15.1%, though Vietnam and the Philippines managed small gains.
Unfortunately, year-to-date (YTD) laggards such as India and Hong Kong were not spared the pain. Mainland investors were net buyers of Hong Kong stocks today via Southbound Stock Connect, buying the top gainers so far this year, which were also today’s losers.
Hong Kong’s AI "picks and shovels" ecosystem was hit hard, as semiconductor stocks fell by -5.65%, though are still up +103% YTD. Meanwhile, electrical equipment stocks fell by -4.85%, though are still up +29% YTD. Technology hardware stocks fell by -6.17% (up +20% YTD). Other sub-sectors that were lower included non-ferrous metals, down -6.62% (down -20% YTD), software down -5.19% (down -13% YTD), media and entertainment down -3.48% (down -32% YTD), and consumer discretionary, down -3.38% (down -28% YTD).
Mainland media noted that Tencent, which closed lower by -4.20%, now has a P/E of 14, which is the lowest in five years. The article also noted that the P/E of Hong Kong internet stocks was 20.17, which is in the 12th percentile over the last 10 years.
Alibaba fell by -3.84% and is reportedly selling its Lingxi Interactive game unit for RMB 9 billion. Alibaba was sold for the ninth day in a row by Mainland investors via Southbound Stock Connect. Baidu's investment and 37.4% ownership in the Taihe Music Group appear to be paying off, as the company has applied for a Hong Kong IPO.
Mainland China and Hong Kong’s AI picks and shovels stocks were hit hard on profit taking, with Mainland communication equipment stocks down -2.16% (up +68% YTD), semiconductors down -1.59% (up +63% YTD), electronic components down -3.85% (up +62% YTD), and computer hardware down -2.61% (up +33% YTD). Banks and Pharmaceuticals were rare bright spots in both markets. The Mainland-listed China equity ETFs favored by the National Team had above-average volumes today, though it's hard to tell if institutional investors stepped in.
The World Economic Forum’s Summer Davos kicked off in Dalian. Premier Li met with South Korea’s Premier Kim Minxi at an event following President Xi and President Lee Jae-Ming’s meeting. Reuters is reporting that Indian National Security Adviser Ajit Doval and Chinese Foreign Minister Wang Yi met during the BRICS National Security Advisers' meeting in New Delhi yesterday. The NPC’s Standing Committee will evaluate adjustments to the draft Financial Law, Public Procurement Law, and Trademark Law.
Yesterday’s Hong Kong downdraft was partly due to concerns about the travel demand during the three-day Dragon Boat Festival, though we voiced some concern that official data was not available yet. The Ministry of Culture and Tourism stated “domestic travel expenditure” was up +4% YoY to RMB 44.4 billion ($6.5 billion), the number of domestic trips was up +4.4% to 124 million, and spending was up +4% to CNY 44.4 billion, according to Yicai. Foreign visitors increased by 31.2% YoY to 87,000, with spending up +31.4% to CNY 950mm $140 million.
Yesterday’s note outlined several headwinds that have weighed on Hong Kong stocks. Today, we’ll take a look at the flip side of the coin by looking at several positives and catalysts. Alibaba and Baidu are spinning off their semiconductor units, which will force investors to do a sum-of-the-parts analysis. Kuiashou is reportedly looking at spinning off its Kling AI unit while buying stock. Tencent continues to buy back stock as China's internet buyback yield is almost 10%! Not a typo!
One question is whether July’s Politburo meeting will result in domestic consumption stimulus, similar to the September 2024's real estate policy announcement. The rubber band feels quite stretched. Korea’s financial regulator recently spoke about the negative consequences of SK Hynix and Samsung dominating the market (They are 28% and 34% of MSCI Korea, respectively). One could argue that the Netherlands faces the same issue with ASML at 50% of its index, as does Taiwan, with TSMC at 55%.
From an indexing perspective, the consequence of the outperformance of AI picks and shovels can be seen not only in the US, with chip stocks outpacing broader tech significantly, but also within global benchmarks. As of the end of May, US stocks accounted for 63% of global market cap, followed by Japan at 5%, Taiwan at 3%, and even Canada is larger than China.
China’s GDP is $18.7 trillion versus Japan’s $4 trillion, South Korea’s $1.87 trillion, Taiwan’s $782 billion, and Canada’s $2.2 trillion. How is it that China’s economy is 4.6 times bigger than Japan’s, 10 times bigger than South Korea’s, 24 times bigger than Taiwan’s, and 8.5 times bigger than Canada’s, but their stock markets are larger? One issue is the capping of Mainland stocks’ market capitalization by index providers.
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | -1.8% |
| Hang Seng Tech | HSTECH Index | -3.3% |
| Hong Kong Turnover | HKTurn Index | -4.1% |
| Hong Kong Short Sale Turnover | HKSST Index | 13.9% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 19.7% |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | 1,324.49 |
| China (Shanghai) | SHCOMP Index | -1.4% |
| China (Shenzhen) | SZCOMP Index | -2.3% |
| China (STAR Board) | Star50 Index | -1.7% |
| Mainland Turnover | .chturn Index | -7.9% |
| Japan | NKY Index | -3.5% |
| India | SENSEX Index | -1.2% |
| Indonesia | JCI Index | -0.3% |
| Malaysia | FBMKLCI Index | -1.2% |
| Pakistan | KSE100 Index | -0.4% |
| Philippines | PCOMP Index | 1.5% |
| South Korea | KOSPI Index | -10% |
| Taiwan | TWSE Index | -1.3% |
| Thailand | SET Index | -2.1% |
| Singapore | STI Index | 0% |
| Australia | AS51 Index | -0.3% |
| Vietnam | VNINDEX Index | 0.6% |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | 124% | 148% |
| Advancing Stocks | 125 | 2653 |
| Declining Stocks | 390 | 2413 |
| Outperforming Factors | None | None |
| Underperforming Factors | Momentum, Growth, EPS Revision | Momentum, Growth, EPS Revision |
| Top Sectors | Healthcare | Financials, Healthcare |
| Bottom Sectors | Materials, Tech, Communication | Materials, Industrials, Tech |
| Top Subsectors | Chemical Industry, Banks, Food/Beverage | Pharmaceutical, Water, Motorcycle |
| Bottom Subsectors | Non Ferrous Metal, Tech Hardware, Semis | Precious Metals, Base Metals, Construction Machinery |
| Southbound Connect Buys | HK Tracker ETF (Very Large), SMIC, Kingboard (Large), Hua Hong Semi, Knowledge Atlas, YOFC (Moderate), KB Laminates (Small) | N/A |
| Southbound Connect Sells | Alibaba (Large), Xiaomi, Tencent (Very smal) | N/A |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 165 | -2.65 |
| Communication Services | 11 | -3.98 |
| Consumer Discretionary | 28 | -3.08 |
| Consumer Staples | 13 | -0.17 |
| Energy | 6 | -1.61 |
| Financials | 25 | -0.58 |
| Health Care | 16 | 0.7 |
| Industrials | 22 | -3.25 |
| Information Technology | 12 | -4.03 |
| Materials | 14 | -6.71 |
| Real Estate | 7 | -2.02 |
| Utilities | 11 | -1.03 |
| Mainland China Listed | 386 | -2.58 |
| Communication Services | 8 | -2.94 |
| Consumer Discretionary | 26 | -1.98 |
| Consumer Staples | 19 | -1.59 |
| Energy | 12 | -1.87 |
| Financials | 64 | 0.4 |
| Health Care | 31 | 0.2 |
| Industrials | 58 | -3.52 |
| Information Technology | 95 | -3.28 |
| Materials | 52 | -5.89 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | -4.2 |
| Alibaba HK | 9988 HK Equity | -3.8 |
| JD.com HK | 9618 HK Equity | -4.4 |
| NetEase HK | 9999 HK Equity | -2.3 |
| Yum China HK | 9987 HK Equity | -2.1 |
| Baozun HK | 9991 HK Equity | -4.5 |
| Baidu HK | 9888 HK Equity | -3.7 |
| Autohome HK | 2518 HK Equity | -4.9 |
| Bilibili HK | 9626 HK Equity | -6.1 |
| Trip.com HK | 9961 HK Equity | -1.4 |
| EDU HK | 9901 HK Equity | -1.4 |
| Xpeng HK | 9868 HK Equity | -4.2 |
| Weibo HK | 9898 HK Equity | -1.7 |
| Li Auto HK | 2015 HK Equity | -4.3 |
| Nio Auto HK | 9866 HK Equity | -1.9 |
| Zhihu HK | 2390 HK Equity | -3.2 |
| KE HK | 2423 HK Equity | -1.6 |
| Tencent Music Entertainment HK | 1698 HK Equity | -5 |
| Meituan HK | 3690 HK Equity | -3.3 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| TENCENT HOLDINGS LTD | -4.2 |
| SEMICONDUCTOR MANUFACTURI-H | -1.3 |
| ALIBABA GROUP HOLDING LTD | -3.8 |
| YANGTZE OPTICAL FIBRE AND-H | -7.5 |
| KINGBOARD LAMINATES HLDG LTD | -5.1 |
| KINGBOARD HOLDINGS LTD | -9.4 |
| HUA HONG GRACE SEMICONDUCTOR | 1 |
| KNOWLEDGE ATLAS TECHNOLOGY-H | -10 |
| XIAOMI CORP-CLASS B | -4.6 |
| LENOVO GROUP LTD | -4.4 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| VISUAL CHINA GROUP CO LTD-A | -2.9 |
| SHANTUI CONSTRUCTION MACHI-A | -3.7 |
| GIGADEVICE SEMICONDUCTO-CL A | -7.1 |
| ZHONGJI INNOLIGHT CO LTD-A | -5.2 |
| EOPTOLINK TECHNOLOGY INC L-A | -4.8 |
| EAST MONEY INFORMATION CO-A | -0.3 |
| HENGTONG OPTIC-ELECTRIC CO-A | -2.3 |
| MONTAGE TECHNOLOGY CO LTD-A | -7.9 |
| CAMBRICON TECHNOLOGIES-A | -3 |
| JIANGSU ZHONGTIAN TECHNOLO-A | 3.5 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.78 versus 6.78 yesterday
- CNY per EUR 7.73 versus 7.75 yesterday
- Yield on 10-Year Government Bond 1.74% versus 1.74% yesterday
- Yield on 10-Year China Development Bank Bond 1.82% versus 1.82% yesterday
- Copper Price -0.57%
- Steel Price -0.32%
