Asian equities were largely higher except for South Korea and Mainland China, though off intra-day lows, as investors brushed off the Fed’s tougher talk on US interest rate cuts. The Asia dollar index was flat versus the US dollar, though CNY/renminbi was slightly off. Mainland China’s move is despite the December Caixin Services PMI increasing to 52.9 from November’s 51.5, reaching its highest level since July 2023 in the twelfth month of expansion and beating expectations of 51.6. Notice many headlines about this economic data point? Me neither, though, as our trader friend Dave says, “Market no care, you no care.”
Mainland China rebounded from intra-day lows on the Ministry of Finance’s Lan Fo’an speaking on expanding the budget deficit to support the economy and extending preferential tax policies for small/micro enterprises, individuals, and industrial and commercial households. President Xi presided over a meeting of the Standing Committee, though the release lacked anything worthwhile.
A factor in recent Mainland stock weakness could be the anticipation of rate cuts to the loan prime rate, medium-term lending facility, and bank reserve requirement ratio, leading to a bond rally. According to Bloomberg, Mainland China’s 10 Treasury Yield hit a low last reached in April 2020. The ratio of Mainland stocks’ dividend yield (2.48%) divided by the yield of the 10-year Treasury (2.53%) is just off its all-time high over the last 16 years and two standard deviations above the historical average. The dividend yield factor is one of the top performing factors (long high dividend stocks and short low dividend stocks). Regardless, Mainland China had a weak day marked by low volume and poor breadth.
Hong Kong was flat, with the HS Tech managing a small gain, though unable to match yesterday’s performance of US-listed ADRs, leading to a small pullback today. Hong Kong’s most heavily traded by value were Tencent -0.6% despite another day of a stock buyback, Alibaba +1.02% on rumors its SE Asia e-commerce unit Lazada will be spun off via IPO, Hong Kong Tracker ETF +0.12% on small net buying from Mainland investors via Southbound Stock Connect, Meituan -0.64% despite Pinduoduo not entering the local delivery (Meituan’s all-time high is Hong Kong $445 on Feb 12, 2021 versus today’s close of Hong Kong $77.50 while revenues are expected to reach RMB 275B versus 2021’s RMB 179B) and BYD -0.47% despite the National Development and Reform Commission announcing it will “vigorously promote intelligent and orderly charging facilities.”. In both Hong Kong and Mainland China, energy, especially coal, outperformed with shippers as freight costs rose. Foreign investors sold $550mm of Mainland stocks via Northbound Stock Connect, hitting large/mega caps growth names favored by domestic and foreign investors.
The Hang Seng and Hang Seng Tech were flat/0% and +0.23% on volume -11.% from yesterday, which is 67% of the 1-year average. 179 stocks advanced, while 300 fell. Main Board short turnover declined -23.72% from yesterday, 74% of the 1-year average, as 19% of turnover was short turnover (remember Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The value factor and large caps outpaced the growth factor and small caps. The top sectors were energy +1.38%, industrials +0.86%, and healthcare +0.77%, while materials -1.09%, staples -0.85%, and communication -0.25%. The top sub-sectors were energy, transportation, and pharmaceuticals, while food/beverage, household products, and materials were the worst. Southbound Stock Connect volumes were light as Mainland investors bought $275mm of Hong Kong stocks and ETFs, with energy giant CNOOC seeing a large net buy, Hong Kong Tracker ETF, and China Mobile small net buys, while Tencent, CCB and ICBC were small net sells.
Shanghai, Shenzhen, and STAR Board fell -0.43%, -0.84%, and -0.71% on volume -8.68% from yesterday, 77% of the 1-year average. 1,746 stocks advanced, while 3,067 declined. The value factor and large caps outpaced the growth factor and small caps. Energy was the only positive sector, +1.26%, while real estate -2.08%, staples -1.77% and tech -1.58%. The top sub-sectors were coal, marine, and highway, while power generation equipment, liquor, and airports were the worst. Northbound Stock Connect volumes were light as foreign investors sold -$550mm of Mainland stocks, with Wuxi AppTec a moderate/large net buy, Sokon and Wanhua small net buys, while Kweichow Moutai, Ping An, and Wuliangye were small/moderate net sells. CNY fell slightly versus the US dollar, though the Asia dollar index was flat. Treasury bonds rallied while copper and steel were off.
- CNY per USD 7.15 versus 7.14 yesterday
- CNY per EUR 7.83 versus 7.80 yesterday
- Yield on 10-Year Government Bond 2.53% versus 2.55% yesterday
- Yield on 10-Year China Development Bank Bond 2.72% versus 2.72% yesterday
- Copper Price -0.29%
- Steel Price -0.25%