Asian equities were mixed overnight as China outperformed. Hong Kong’s rebound marched on last night and Mainland markets joined in on the parade as investors price in material policy support for markets and the economy.
The rally was supported by strong volumes both within exchanges and Stock Connect. Northbound Connect saw over $800 million flow into Mainland stocks, while Southbound saw $232 million flow into Hong Kong. Southbound flows could reflect further buying by the “National Team” or investment firms with ties to the social security fund, sovereign wealth fund, or other government-related entities.
TAL Education reported Q4 earnings overnight, the first among internet and technology companies to do so. The former tutoring company that has reinvented itself into an education technology company beat estimates in its top-line revenue. The company generated $374 million in revenue compared to an estimated $330 million. Evidently, the company has seen some traction for its educational technology products, though expectations were low going into the release.
What are the fundamental catalysts that could keep the rally afloat? Chinese (Lunar) New Year begins in two weeks, which will give us some insight into how the consumer is faring in 2024. Meanwhile, as TAL’s earnings suggest, internet earnings could be highly positive, though they do not begin in earnest for another month.
The Hang Seng and Hang Seng Tech indexes gained +1.96% and +0.90% on volume that increased +3% from yesterday, which is 130% of the 1-year average. 393 stocks advanced while 109 declined. Main Board short turnover increased +4% from yesterday, which is 159% of the 1-year average turnover (remember Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The value factor and large caps outperformed the growth factor and small caps. The top-performing sectors were Energy, which gained +6.28%, Real Estate, which gained +5.33%, and Utilities, which gained +4.95%. Meanwhile, Technology was off -0.18%. The top-performing subsectors were energy, materials, and capital goods. Meanwhile, autos were among the worst-performing subsectors. Southbound Stock Connect volumes were high as Mainland investors bought a net $232 million worth of Hong Kong-listed stocks and ETFs, including China Mobile, CNOOC, and PetroChina. Meanwhile, Tencent, Ping An Insurance, and Semiconductor Manufacturing International (SMIC) were net sold.
Shanghai, Shenzhen, and the STAR Board gained +3.03%, +2.62%, and +2.07%, respectively, on volume that increased +16.47% from yesterday, which is 103% of the 1-year average. 4,787 stocks advanced while 220 declined. The value factor and small caps outperformed the growth factor and large caps. All sectors were positive, including Real Estate, which gained +5.41%, Energy, which gained +4.15%, and Communication Services, which gained +4.1%. All subsectors were positive, including oil & gas, telecom, and construction, which made up the top-performers. Northbound Stock Connect volumes were high as foreign investors bought a net $877 million worth of Mainland stocks, including BYD, China Merchants Bank, and China Yangtze Power Company. Meanwhile, PetroChina Ping An Insurance, and Sokon were small net sells. CNY and the Asia Dollar Index were off versus the US dollar. Steel and copper gained.
- CNY per USD 7.17 versus 7.16 yesterday
- CNY per EUR 7.78 versus 7.80 yesterday
- Yield on 1-Day Government Bond 1.60% versus 1.60% yesterday
- Yield on 10-Year Government Bond 2.50% versus 2.50% yesterday
- Yield on 10-Year China Development Bank Bond 2.65% versus 2.64% yesterday
- Copper Price +1.00%
- Steel Price +0.86%