Asian equities were mixed overnight as Japan outperformed, Hong Kong and Mainland China underperformed, and India was off on holiday.
None of the eleven economists who submitted estimates for January’s 1 & 5-Year Loan Prime Rate (LPR) anticipated a rate cut especially after the intra-bank Medium-term Lending Facility (MLF) rate was not cut last weekend. After the dismal December real estate sales, there may have been hopes for a cut, though that did not occur.
Hong Kong and Mainland China had another poor day, which was marked by weak breadth (advancers versus decliners). The market is in a negative feedback loop as investors stay on the sidelines, as the market falls and hits the liquidation levels of Mainland China’s “snowballs” and Hong Kong’s Callable Bull/Bear Contracts (CBBCs).
However, the contracts are far from the sole culprit in the markets’ malaise as the lack of significant policy has underwhelmed investors. US equity outperformance continues to create a positive feedback loop, pulling in more domestic and foreign investors’ cash, only exacerbating the most crowded trade globally.
Reports that Congress passed a law banning the US military from buying China-made electric vehicle (EV) batteries did not help market sentiment and weighed on the EV ecosystem.
The market’s decline is a public relations disaster as it fulfills the bear’s views of China while hurting those most aligned with the economy. The Mainland market’s fall is especially unnerving as local citizens give a thumbs-down to policy support efforts thus far.
Even with the National Team appearing to buy their favorite ETF today, it had no effect. Breadth in both Hong Kong and Mainland China was awful as every sector and every subsector except one fell. Northbound and Southbound Stock Connect flows were both in the net buy direction, one of the day’s few bright spots. There are many examples of the Chinese government changing policy to appease public sentiment. Let’s hope they act soon!
The Hang Seng and Hang Seng Tech indexes fell -2.27% and -3.02%, respectively, on volume that increased +15.08% from Friday, which is 111% of the 1-year average. 25 stocks rose and 485 declined. Main Board short turnover increased +25.65% from Friday, which is 128% of the 1-year average. The value factor and large caps “outperformed” (i.e. fell less than) the growth factor and small caps. All sectors were negative, led lower by Real Estate, which fell -8.42%, Health Care, which fell -4.14%, and Materials, which fell -3.82%. All subsectors were negative, including media, real estate, and semiconductors, which were among the worst-performing. Southbound Stock Connect volumes were high/moderate as Mainland investors bought a net $83 million worth of Hong Kong-listed stocks and ETFs, including Meituan, which was a moderate buy, China Merchants Bank, and Ping An, which were small net buys while Tencent, China Mobile, CNOOC, XPeng and Li Auto were small net sells.
Shanghai, Shenzhen, and the STAR Board fell -2.68%, -4.47%, and -3.04%, respectively, on volume that increased +19.64% from Friday, which is 92% of the 1-year average. 121 stocks advanced while 4,905 declined. The value factor and large caps “outperformed” (i.e. fell less than) the growth factor and smaller caps. All sectors were negative, led lower by Communication Services, which fell -4.93%, Materials, which fell -3.75%, and Real Estate, which fell -3.5%. Insurance was the only positive subsector, while cultural media, internet, and chemicals were among the worst-performing. Northbound Stock Connect volumes were elevated as foreign investors bought a net $145 million worth of Mainland stocks, including CATL, China Merchants Bank, and Kweichow Moutai. Meanwhile, TZE was large net sell, and Wuxi AppTec and East Money were moderate net sells. CNY and the Asia Dollar Index were up small versus the US dollar. Treasury bonds gained along with copper and steel.
- CNY per USD 7.82 versus 7.82 Friday
- CNY per EUR 7.20 versus 7.19 Friday
- Yield on 1-Day Government Bond 1.50% versus 1.50% Friday
- Yield on 10-Year Government Bond 2.40% versus 2.50% Friday
- Yield on 10-Year China Development Bank Bond 2.64% versus 2.64% Friday
- Copper Price +0.55% overnight
- Steel Price +0.03% overnight