Asian equities had a strong start to the week except for Thailand as South Korea rocketed higher on a short sale ban.
The short sale ban in Korea appears to be an effort by politicians to keep a retail-driven market alive in advance of an election, though the ban removes any chance for an MSCI upgrade of Korea’s markets from emerging to developed.
CNY and the Asia Dollar Index both rallied versus the US dollar overnight as skepticism grows on further US interest rate hikes.
Hong Kong and Mainland China had a strong day on strong volumes led by growth stocks as investors gravitate to the “good stuff” (i.e. growth sectors and subsectors including internet, the electric vehicle (EV) ecosystem, clean technology, technology, and health care). Energy was down in both Hong Kong and Mainland China today.
Foreign investors bought a net $725 million worth of Mainland stocks via Northbound Stock Connect as Shenzhen stocks saw very strong buying while Shanghai stocks saw net selling. Why? Shanghai is home to state-owned-enterprises (SOEs), which are in historic “old” economy sectors while Shenzhen is comprised of private companies, which are predominantly in growth or ”new” economy sectors.
The top foreign purchases overnight were EV battery maker CATL, solar companies LONGi Green Energy and Sungrow Power Supply, and pharmaceutical contract research organization (CRO) Wuxi AppTec. There was some chatter about how low foreign investors’ current weights to China are in general, a reversal of which would provide further dry powder for the rally.
Do you think anybody is ready for a photo of Biden and Xi shaking hands? Neither do I. The Shenzhen Composite is above our “line in the sand” of 1,900 after closing at 1,914 overnight. Meanwhile, Shanghai is at 3,058, closing in on the 3,100 level.
Hong Kong’s most heavily traded stocks by value overnight were Tencent, which gained +3.3%, Meituan, which gained +5.59%, and Alibaba, which gained +2.41%. Meanwhile, the Hang Seng Tech Index closed above its 200-day moving average.
Alibaba’s Singles Day (11/11) event, which is quite literally the Super Bowl of Shopping, officially takes place on Saturday, through pre-sales have been running since late last month. Q3 E-Commerce earnings, which will begin to be reported next week, may appear low on a year-over-year basis. As such, it is important to remember that 11/11 sales festivals tend to boost Q4 sales on platforms, which translates to consistently higher earnings in Q4, similar to Black Friday and Christmas for US E-Commerce platforms.
Stockbrokers had a strong day as the China Securities Regulatory Commission (CRSC), China’s SEC, advocated that companies in the industry continue to expand and improve efficiency through mergers and acquisitions, perhaps taking note of Schwab’s acquisition of TD Ameritrade in the US.
Real estate had a strong day in Mainland China and Hong Kong as state-owned real estate developer Vanke called a bondholder meeting after its bonds suddenly sold off one wee ago.
The Ministry of Finance (MoF) advocated for further fiscal policies to support the economy following the Central Financial Work Conference (CFWC).
China’s Vice Premier He Lifeng will meet with Treasury Secretary Janet Yellen in Washington, DC this week. Meanwhile, Premier Li opened the China International Import Exposition, which was attended by many foreign brands that are active in China.
There was some chatter on low foreign direct investment in China. However, as our trader friend Dave says, “If the market no care, you no care.”
The Hang Seng and Hang Seng Tech indexes gained +1.71% and +4.09%, respectively, overnight on volume that increased +27% from Friday, which is 103% of the 1-year average. 404 stocks advanced while 92 declined. Main Board short turnover increased +10.17% from Friday, which is 84% of the 1-year average, as 13% of turnover was short turnover (Remember that Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The growth factor outperformed the value factor overnight as small caps slightly outperformed large caps. All sectors, except for energy, were positive, led by healthcare, which gained +4.88%, real estate, which gained +3.96%, and consumer discretionary, which gained +3.45%. The top-performing subsectors were autos, pharmaceuticals, and software. Meanwhile, energy, transportation, and telecom were among the worst-performing. Southbound Stock Connect volumes were very high as Mainland investors bought a net $106 million worth of Hong Kong-listed stocks and ETFs, including Tencent, which was a particularly large net buy, Meituan, and Hong Kong Exchanges. Meanwhile, China Mobile and energy giant CNOOC were moderate net sells.
Shanghai, Shenzhen, and the STAR Board gained +0.91%, +2.13%, and +1.69%, respectively, on volume that increased +32% from Friday, which is 122% of the 1-year average. 4,402 stocks advanced while 511 declined. The growth factor and small caps outperformed the value factor and large caps. The top-performing sectors were communication, which gained +4.63%, real estate, which gained +3.98%, and technology, which gained +3.57%. Meanwhile, utilities and energy fell -0.85% and -1.80%, respectively. The top-performing subsectors were cultural media, internet, and securities. Meanwhile, oil & gas, coal, and precious metals were among the worst-performing. Northbound Stock Connect volumes were high as foreign investors bought a net $725 million worth of Mainland stocks including BYD, a large net buy, BOE, CATL, LONGi Green Energy, Sungrow, and Wuxi AppTec. CNY and the Asia Dollar Index rallied versus the US dollar. 10-year Treasury bonds were basically flat, copper fell, and steel rallied.
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- CNY per USD 7.27 versus 7.28 on Friday
- CNY per EUR 7.81 versus 7.81 on Friday
- Yield on 1-Day Government Bond 1.40% versus 1.58% on Friday
- Yield on 10-Year Government Bond 2.66% versus 2.66% on Friday
- Yield on 10-Year China Development Bank Bond 2.72% versus 2.72% on Friday
- Copper Price -0.34% overnight
- Steel Price +0.74% overnight