STAR Board Soars As National Team Buys Early & Often
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Key News
Asian equities were mixed despite AMD’s strong results and outlook after the US close, as Hong Kong and Mainland China outperformed while Japan returned from holiday with a thud.
We had a one-two-three punch as China's "National Team", i.e., investment firms associated with sovereign wealth, hit the buy button across the trading day (as we’ve suggested!), with an emphasis on two tech-heavy ETFs; brokerage firms tapped the PBOC swap line in size to buy stocks and equity ETFs, and widely held and popular tech companies announced buybacks. Growth and AI supply chain stocks absolutely rocketed in both markets, with the Science & Technology (STAR) Board up +9.92% while the Hang Seng Tech was up +1.77%.
The eleven Mainland-listed China equity ETFs we believe the National Team is utilizing all had above-average trading volumes, with four ETFs exceeding the RMB 10 billion in trading volume. The National Team’s holdings won’t be known for certain until the Q4 holdings are released, unfortunately. The two most heavily traded were a Shenzhen-focused ETF with RMB 20 billion value traded (8.1 million shares traded versus 3.1 million 30-day average) and the Science & Technology (STAR) Board ETF with RMB 19 billion value traded (14.9 million shares traded versus 6.4 million 30-day average). Seven Mainland-listed China equity ETFs saw $1 billion in inflows on Tuesday.
The PBOC reported that 24 brokerage firms tapped into the Securities, Funds and Insurance Companies Swap Facility (SFISF) for RMB 40 billion to buy stocks and equity ETFs.
There were numerous buyback announcements from Mainland-listed tech companies. Among those that stood out were tech giants CXMT, up +13.63% with a buyback of RMB 2.5 billion to 5 billion; Montage Technology, up +11.87% after announcing it bought 61,500 shares today; and iFlyTek, up +2.16% after announcing it bought 1.571 million shares recently.
Mainland China’s AI supply chain (semiconductor, semiconductor equipment, electronic equipment, and communication equipment) absolutely ripped along with non-ferrous metals, while defensive plays such as banks, insurance, telecommunications, and oil and gas fell.
Hong Kong saw a broader rally, led by tech hardware, semis, non-ferrous metals, internet, CATL (+4.43%), and healthcare. Alibaba gained +1.05%, Tencent gained +1.11% as it launched Hy4 LLM, Baidu gained +2.48%, and seventeen other tech companies joined together to issue the “Autonomous Agent Development Self-Discipline Convention,” agreeing to ethical use of algorithms in a nod to recent regulatory guidance. Remember, Premier Li just spoke at China’s big internet conference alongside company executives.
Healthcare was Hong Kong’s top sector, up +9.14%, as Sino Biopharmaceutical +5.42% announced an oncology partnership valued at $7B with Boehringer Ingelheim, and Hanshoh Pharmaceutical +6.83% in HK announced a partnership with Roche valued at $15.5B on an antibody-drug conjugate. The real winners were Wuxi Biologics (+12.22%), WuXi AppTec (+12.39%), Genscript Biotech (+12.51%), and BeOne Medicines (+10.18%) as the Democrats' sweep will likely roll back Medicaid cuts. More US government spending might explain non-ferrous metals, i.e., gold, being higher.
During the Ministry of Foreign Affairs daily press conference and reporter Q&A, when asked about a Trump-Xi-Putin meeting at APEC, the spokesperson responded: “China is maintaining communication with relevant parties regarding the meeting between the Chinese, Russian, and US heads of state.” Sounds like a done deal to me?
October “private” Services PMI was 50.8 versus September’s 51.6 and expectations of 51.7.
National Development and Reform Commission released the concisely titled “Guiding Opinions on Strengthening Consumer Infrastructure and Promoting Positive Interaction Between Consumption and Investment”. For the 15th Five-Year Plan to achieve RMB 60 trillion in retail sales by 2030, domestic demand needs to be “expanded” alongside the development of consumer infrastructure. Interesting!
Online auto retailer Autohome (ATHM US, 2518 HK) reported Q3 financial results that beat analyst expectations for revenue, adjusted EPS, and adjusted net income, though all three declined YoY.
One week to Alibaba’s Singles Day (November 11, i.e., 11/11) sales extravaganza, with JD.com and Pinduoduo getting in on the action. Remember the days of huge media coverage? Long gone!
China’s K-shaped economy has been driven by foreign demand for AI picks and shovels (semis, semiconductor equipment, tech hardware’s electronic components and communications equipment) along with traditional export-driven manufacturing (high-end things like auto/EV and solar/clean tech but also cheap stuff, etc.). I’m sure more than a few folks were surprised to learn that SK Hynix and Samsung manufacture an element of their chips in China, though looking at your iPhone should be a constant reminder that China remains the world’s factory (as I type on a Lenovo laptop!). It ain’t Intel Inside; it’s China inside all those data centers and servers. This has been the upper K of China’s economy, while domestic consumption remains tepid due to the housing price collapse and its knock-on effects.
Beijing has avoided consumer stimulus or Western-style consumption stimulus to avoid what happened after the COVID stimulus: rising government debt, inflation, and rising government spending. As long as exports chug along, why spend on stimulus? While I personally believe AI is a transformational technology that has only just begun to be implemented (the physical AI developments aren’t even on investors' radar, IMO), one can’t ignore AI stocks' declines in Korea, China, Japan, and (gulp) the US. Could Beijing’s consumer-stimulus-avoidance honeymoon end if foreign demand for China’s AI picks and shovels slows? Raising domestic demand would mitigate the effect. I don’t doubt that if I’m thinking this way, Beijing has already considered it as well.
Hong Kong buybacks that took place today but were announced after the close included KE (BEKE) Holdings, which bought back 422,883 shares.
Last Night's Performance
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.67 versus 6.67 yesterday
- CNY per EUR 7.50 versus 7.45 yesterday
- Yield on 10-Year Government Bond 1.61% versus 1.62% yesterday
- Yield on 10-Year China Development Bank Bond 1.66% versus 1.66% yesterday
- Copper Price -0.93%
- Steel Price -0.10%
