Will Lower Rates Shift Bank Deposits Into Stocks?
6 Min. Read Time
Key News
Asian equities were risk-off amid Middle East tensions, as oil prices rose and videos of burning tankers circulated online. The US dollar strengthened overnight. Oil & gas rallied as value outperformed growth.
There are three key macro highlights from last night that I think are worth mentioning:
- The US Trade Representative Greer announced Section 301 tariffs targeting "overcapacity". These were widely anticipated following the Supreme Court decision last month. One would assume this is the "Art of the Deal" in advance of the US-China trade talks in Paris tomorrow and President Trump's end-of-month China trip.
- The People's Bank of China (PBOC), China's central bank, and major banks met as part of the Market Interest Rate Pricing Self-Regulatory Mechanism. The decided to cap the 7-day reverse repo rate at 1.4%, which has the knock-on effect of lowering the interest rate on RMB 10 trillion of deposits. The key is that lower deposit rates, which have gone from 2.5% five years ago to just under 1.5% today, may cause households to shift a portion of their bank deposits into risk assets such as stocks, as we saw in August 2025, leading to a strong rally. Time will tell, but keep an eye out.
- The Ministry of Finance (MoF) is moving ahead with the issuance of RMB 100 billion worth of ultra-long-term government bonds, and the proceeds will be used for "fiscal and financial coordination to promote domestic demand this year". MoF's Lan Fuan acknowledged that "supply is strong while demand is weak" as six policies geared to domestic consumption will be implemented. The Chinese bureaucratic gears are starting to turn after receiving orders from policymakers.
Hong Kong and Mainland China slid in the morning, though rallied off the intraday lows in the afternoon, posting small losses. In Hong Kong, oil & gas rallied, led by CNOOC, which gained +3.71%. Other leaders included coal names, battery maker CATL, which gained +1.75%, and electric vehicle stocks, led by Xpeng, which gained +4.39%.
BYD gained +0.05% on rumors that it will enter Formula 1 racing. That would be a logical branding exercise, in my opinion. BYD would be the first China-native brand to do so.
Tencent fell -1.00% and Alibaba fell -1.20%. The warning from the Ministry of Industry and Information Technology (MIIT) on OpenClaw adoption by state-owned enterprises (SOEs) likely did not help sentiment for these stocks.
Mainland investors bought the Hong Kong dip via Southbound Stock Connect, as the Hong Kong Tracker ETF saw very large inflows.
Li Auto gained +0.43%, though, after the close, results missed across the board. Q4 sales declined -31% year-over-year (YoY), Earnings per share declined to RMB 0.04 from RMB 0.52 in Q4 of 2024. Meanwhile,Q1 revenue and unit sales forecasts were lighter than anticipated.
Regulators raided two Hong Kong institutional brokers, and several employees were arrested on insider trading claims surrounding IPOs. This may have contributed to the -1.22% decline in the stock price of Hong Kong Exchanges & Clearing (HKEX). That is despite the fact that HKEX has nothing to do with the arrests.
Similar to Hong Kong, Mainland China's markets saw oil & gas, electricity, coal, and banks all gain. Meawhile technology hardware, semiconductors, and insurance were all off. The Mainland-listed China equity ETFs that are favored by China's "National Team", ie. investment firms associated with China's sovereign wealth, experienced below-average volumes, though redemptions rose slightly.
PBOC head Pan Gongsheng reiterated the need for loose monetary conditions at a symposium that was attended by economists. The PBOC also held the 2026 Science and Technology Work Conference.
The 14th National People's Congress (NPC) ended today. The Global Times reported that "lawmakers approved the government work report and the outline of the 15th Five-Year Plan (2026-2030) for national economic and social development."
Last Night's Performance
| Country / Index | Ticker | 1-Day Change |
|---|---|---|
| China (Hong Kong) | HSI Index | -0.7% |
| Hang Seng Tech | HSTECH Index | -0.5% |
| Hong Kong Turnover | HKTurn Index | -4.8% |
| Hong Kong Short Sale Turnover | HKSST Index | 24.8% |
| Short Turnover as a % of Hong Kong Turnover | N/A | 19.3% |
| Southbound Stock Connect Net Buy/Sell (US $ Millions) | N/A | 1,440.95 |
| China (Shanghai) | SHCOMP Index | -0.1% |
| China (Shenzhen) | SZCOMP Index | -0.7% |
| China (STAR Board) | Star50 Index | -1.2% |
| Mainland Turnover | .chturn Index | -2.7% |
| Japan | NKY Index | -1% |
| India | SENSEX Index | -1.1% |
| Indonesia | JCI Index | -0.4% |
| Malaysia | FBMKLCI Index | 0.1% |
| Pakistan | KSE100 Index | -0.7% |
| Philippines | PCOMP Index | -0.7% |
| South Korea | KOSPI Index | -0.5% |
| Taiwan | TWSE Index | -1.6% |
| Thailand | SET Index | 1.6% |
| Singapore | STI Index | -0.2% |
| Australia | AS51 Index | -1.3% |
| Vietnam | VNINDEX Index | -1.1% |
| Indicator | Hong Kong | Mainland China |
|---|---|---|
| Today's Volume % of 1-Year Average | 94 | 127 |
| Advancing Stocks | 177 | 1,442 |
| Declining Stocks | 327 | 3,633 |
| Outperforming Factors | Value, Dividend Yield, Large Cap | Value, Dividend Yield, Low Volatility |
| Underperforming Factors | Liquidity, Quality, EPS Revision | Momentum, EPS Revision, Growth |
| Top Sectors | Energy, Utilities, Financials | Energy, Utilities, Financials |
| Bottom Sectors | Healthcare, Consumer Staples, Real Estate | Communication Services, Information Technology, Healthcare |
| Top Subsectors | Coal, Chemical Industry, Environmental Protection | Coal, Power Generation Equipment, Gas |
| Bottom Subsectors | Aerospace, Machinery, Pharmaceuticals | Construction Machinery, Aerospace/Military, Soft Drink |
| Southbound Connect Buys | HK Tracker ETF (Very Large), CNOOC (Large), SMIC, YOFC (Small) | N/A |
| Southbound Connect Sells | Alibaba, Tencent (Moderate) | N/A |
| MSCI China All Shares Index | # of Stocks | Average 1-Day Change (%) |
|---|---|---|
| Hong Kong Listed | 165 | -0.59 |
| Communication Services | 11 | -1.02 |
| Consumer Discretionary | 28 | -0.65 |
| Consumer Staples | 13 | -1.47 |
| Energy | 6 | 1.45 |
| Financials | 25 | 0.3 |
| Health Care | 16 | -2.4 |
| Industrials | 22 | -0.77 |
| Information Technology | 12 | -0.74 |
| Materials | 14 | -0.51 |
| Real Estate | 7 | -1.46 |
| Utilities | 11 | 1.32 |
| Mainland China Listed | 386 | -0.28 |
| Communication Services | 8 | -1.63 |
| Consumer Discretionary | 26 | -0.4 |
| Consumer Staples | 19 | -0.01 |
| Energy | 12 | 2.13 |
| Financials | 64 | 0.18 |
| Health Care | 31 | -0.88 |
| Industrials | 58 | -0.44 |
| Information Technology | 95 | -1.06 |
| Materials | 52 | -0.18 |
| US & Hong Kong Dually Listed | Ticker | 1-Day Change (%) |
|---|---|---|
| Tencent HK | 700 HK Equity | -1 |
| Alibaba HK | 9988 HK Equity | -1.2 |
| JD.com HK | 9618 HK Equity | 0.8 |
| NetEase HK | 9999 HK Equity | -0.6 |
| Yum China HK | 9987 HK Equity | -1.8 |
| Baozun HK | 9991 HK Equity | -0.9 |
| Baidu HK | 9888 HK Equity | -1.1 |
| Autohome HK | 2518 HK Equity | -1.9 |
| Bilibili HK | 9626 HK Equity | -2.8 |
| Trip.com HK | 9961 HK Equity | -2.1 |
| EDU HK | 9901 HK Equity | 0 |
| Xpeng HK | 9868 HK Equity | 4.4 |
| Weibo HK | 9898 HK Equity | -0.3 |
| Li Auto HK | 2015 HK Equity | 0.4 |
| Nio Auto HK | 9866 HK Equity | 3.2 |
| Zhihu HK | 2390 HK Equity | -1 |
| KE HK | 2423 HK Equity | -1.8 |
| Tencent Music Entertainment HK | 1698 HK Equity | -2.8 |
| Meituan HK | 3690 HK Equity | -0.9 |
| Hong Kong's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| TENCENT HOLDINGS LTD | -1 |
| CNOOC LTD-H | 3.7 |
| ALIBABA GROUP HOLDING LTD | -1.2 |
| SHANDONG MOLONG PETROLEUM-H | 17.3 |
| YANGTZE OPTICAL FIBRE AND-H | -7.2 |
| MEITUAN-CLASS B | -0.9 |
| SEMICONDUCTOR MANUFACTURI-H | -1 |
| HUA HONG SEMICONDUCTOR LTD-H | 3.5 |
| XIAOMI CORP-CLASS B | -0.8 |
| XPENG INC - CLASS A SHARES | 4.4 |
| Shanghai and Shenzhen's Most Heavily Traded by Value | 1-Day Change (%) |
|---|---|
| HGTECH CO LTD-A | 9.2 |
| SUNGROW POWER SUPPLY CO LT-A | 9.5 |
| CHINA ENERGY ENGINEERING C-A | 10.1 |
| GOLDWIND SCIENCE & TECHNOL-A | 6.2 |
| EOPTOLINK TECHNOLOGY INC L-A | -1 |
| ZHONGJI INNOLIGHT CO LTD-A | 1.4 |
| SUZHOU TFC OPTICAL COMMUNI-A | 0.9 |
| CONTEMPORARY AMPEREX TECHN-A | 5.4 |
| ACCELINK TECHNOLOGIES CO -A | 8 |
| BEIJING TEAMSUN TECHNOLOGY-A | 2.7 |
Last Night's Exchange Rates, Prices, & Yields
- CNY per USD 6.86 versus 6.87 yesterday
- CNY per EUR 7.93 versus 7.97 yesterday
- Yield on 10-Year Government Bond 1.81% versus 1.81% yesterday
- Yield on 10-Year China Development Bank Bond 1.96% versus 1.97% yesterday
- Copper Price -0.66%
- Steel Price +0.55%
