- Asian equities were mixed in the first full week of trading in 2024 as China underperformed for the week despite the rally on Thursday.
- Reports that Mainland mutual fund families can allow for increased redemptions caused a selloff on Monday, as buyers remain on the sidelines waiting for more rate cuts, stimulus measures.
- Government bonds rallied this week in anticipation of rate cuts as China’s 10-year yield hit a 52-week low.
- Passenger car sales increased +8.5% year-over-year in December, bringing 2023’s total cars sold to nearly 22 million. Meanwhile, China is on track to have exported the most vehicles of any country in 2023.
Asian equities ended the week largely higher though still mixed as Japan and India outperformed and investors digested yesterday’s higher-than-expected US inflation in December.
Hong Kong and Mainland China were off on light volumes as investors waited for the much-heralded interest rate cut that has yet to materialize. Government bond prices fell as investors took profits on a brief bond rally.
Taiwan’s election is this weekend, though the current ruling party is widely expected to win. When you read about a potential invasion, please pull up a chart of Taiwan Semiconductor (2330 TT, TSMC US) or use Google Maps to look at Kinmen County, which lies just 3 miles from Mainland China. If such an event is probable, shouldn’t TSMC be worth zero? Meanwhile, in Kinmen County, do you notice all the houses? If you are worried about an invasion, shouldn’t you sell your Apple, Tesla, Exxon Mobil, etc., all stocks that have high China revenue exposure?
Unfortunately, Hong Kong-listed internet names could not match the strong performance of their US-listed counterparts yesterday.
China’s CPI has a very high weight to pork prices, which continue to fall as the food component fell -3.7% YoY while non-food increased +0.5%. The “China deflation” narrative shows the lack of intellectual curiosity. Have you read anything on China’s trade data beating expectations? Me neither. If it bleeds it leads! China’s positive trade balance is a good indication the global economy could be doing all right!
Aggregate financing came in below expectations, though new loans were up from November. A rate cut will help, but generating demand is more important than making supply cheaper.
Mainland media noted the PBOC approved RMB 100 billion in loans for eight cities to buy unsold apartments that will then be rented as affordable housing. Real estate stocks had a weak day, though, remember that these stocks are likely to be diluted due to new issuance. I continue to advocate for real estate developers’ bonds as opposed to stocks for this reason.
Distressed developer Aoyuan Group restructured their offshore debt in a Hong Kong court. Its bond payment deadlines were extended by three years and its interest rates were cut, allowing the company to survive.
Hong Kong’s most heavily traded stocks by value were Tencent, which gained +0.35% after repurchasing another 1.73 million shares, Meituan, which fell -0.46% after buying back 5.3 million shares following Thursday’s sale of 5.3 million shares and Wednesday’s sale of 5.6 million, Alibaba, which fell -0.42%, HSBC, which fell -2.38% after a recent rally, and BYD, which fell -0.66% as Tesla’s China price cut whacked electric vehicles despite and Wuxi Biologics falling -3.12% after the recent run. Mainland stocks were off slightly on little news.
There has been a fair amount of Mainland media attention to the China Securities Regulatory Commission (CSRC), China’s SEC. The agency has held multiple press conferences urging Mainland companies to pay more dividends. Although it did not move the market today, this could be a good long-run development. Enjoy your weekend!
The Hang Seng and Hang Seng Tech indexes fell -0.35% and -0.92%, respectively, on volume that decreased -26% from yesterday, which is 67% of the 1-year average. 205 stocks advanced while 265 stocks declined. Main Board short sale turnover declined -16% from yesterday, which is 64% of the 1-year average, as 16% of turnover was short turnover (remember Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Large caps “outperformed” (i.e. fell less than) small caps as the growth and value factors were mixed. The top-performing sectors were Industrials, which gained +1.39%, Energy, which gained +1.28%, and Materials, which gained +1.27%. Meanwhile, Real Estate fell -2.04%, Health Care fell -1.96%, and Consumer Discretionary fell -0.56%. The top-performing sub-sectors were media, energy, and business services. Meanwhile, foodstuffs, pharmaceuticals, and autos were among the worst-performing. Southbound Stock Connect volumes were light as Mainland investors bought a net $187 million worth of Hong Kong-listed stocks and ETFs including China Mobile, CNOOC, and China Construction Bank (CCB). Meanwhile, Mailand investors sold Tencent, Meituan, and HSBC on a net basis.
Shanghai, Shenzhen, and the STAR Board fell -0.16%, -0.64%, and -1.46%, respectively, on volume that decreased -5% from yesterday, which is 77% of the 1-year average. 1,408 stocks advanced while 3,424 declined. The value factor and large caps “outperformed” (i.e. fell less than) the growth factor and smaller caps. The top-performing sectors were Utilities, which gained +1.24%, Energy, which gained +0.67%, and Industrials, which gained +0.03%. Meanwhile, Communication Services fell -2.02%, Technology fell -1.37%, and Health Care fell -1.27. The top-performing subsectors were shipping, power industry, and agriculture. Meanwhile, computer hardware, internet, and software were among the worst-performing. Northbound Stock Connect volumes were light as foreign investors sold a net -$422 million worth of Mainland stocks. Agricultural Bank, Tongwei, and Wanhua were small net buys within the mutual market access program. Meanwhile, Kweichow Moutai, Inovance, and LONGi Green Energy were small net sells. CNY was flat versus the US dollar while the Asia Dollar Index made a small gain. Government bonds sold off along with steel while copper managed a small gain.
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- CNY per USD 7.17 versus 7.17 yesterday
- CNY per EUR 7.86 versus 7.86 yesterday
- Yield on 1-Day Government Bond 1.54% versus 1.52% yesterday
- Yield on 10-Year Government Bond 2.52% versus 2.50% yesterday
- Yield on 10-Year China Development Bank Bond 2.73% versus 2.71% yesterday
- Copper Price +0.09%
- Steel Price -0.20%