Key News
Asian equities had a strong day, led by Australia, South Korea, Taiwan, Thailand, and Vietnam, while India underperformed, as the US dollar weakened overnight.
Despite wet and overcast conditions, both Hong Kong and Mainland China stocks advanced in a broad-based rally. Hong Kong was buoyed by Tencent, which rose 1.64% ahead of a mobile game release, and by gains in online entertainment stocks, including Kuaishou (up 2.79%), Bilibili (up 2.94%), and Tencent Music Entertainment (up 2.61%). Banks and healthcare companies, particularly in the biotechnology and pharmaceutical sectors, also outperformed. However, some large-cap stocks lagged, including Alibaba, which was down -0.17%, Xiaomi, which was down -0.46%, Contemporary Amperex Technology (CATL), which was down -1.29%, and BYD, which was down -2.1%.
Mainland investors were highly active, purchasing a substantial $2.98 billion worth of Hong Kong-listed exchange-traded funds (ETFs) and stocks. The Hong Kong Tracker ETF saw an especially large inflow, and Tencent had significant buying.
It is notable how little attention Western media gives to positive Chinese economic data. For instance, today’s S&P Global July Services Purchasing Managers’ Index (PMI) for China came in at 52.6, beating expectations of 50.4 and up from June’s reading of 50.6.
Meituan finished down -0.08%, but after the close, it announced plans to support small and medium-sized merchants and restaurants. This sector has suffered from intense price competition among Meituan, JD.com, and Alibaba in the food delivery and instant commerce space. The response stems from the firm’s intention to follow the government’s mandate to curb unhealthy internal competition.
The People’s Bank of China (PBOC) and seven other government agencies, including the Ministry of Industry and Information Technology (MIIT), State Administration of Foreign Exchange (SAFE), the National Development and Reform Commission (NDRC), and the Ministry of Finance (MoF), issued new “Guiding Opinions on Financial Support for New Industrialization” following the third Plenary Session of the Communist Party of China (CPC) Central Committee. This document demonstrates how top government leadership sets overall direction, which is then implemented by various agencies. As the name suggests, the policy aims to ease the allocation of financial resources to strengthen industrial chains with a focus on science and technology.
Mainland media highlighted the goal of “strengthening medium and long-term loan support for digital infrastructure construction, such as 5G, industrial internet, data, and computing centers.” Agencies are tasked with supporting “emerging industries such as new-generation information technology, basic software, industrial software, intelligent (networked) automobiles, new energy, new materials, high-end equipment, spatiotemporal information, commercial aerospace, biomedical, and network and data security.” Spatiotemporal information refers to data that has both spatial (location-based) and temporal (time-based) elements. While the document does not use the term “anti-involution,” it specifically calls for actions to “prevent internal competition.”
Despite the document’s emphasis on growth and technology sectors, value stocks outperformed, led by banks, insurance, and oil companies in Shanghai. Electronic equipment companies were also strong, as Foxconn was up 6.31%. Broad market internals in both Hong Kong and Mainland China remain strong. Although a few stocks are technically overbought, the continued market breadth is a positive sign.
In political news, President Trump expressed optimism about a potential US-China trade deal during his CNBC appearance this morning. He also made comments about potentially raising tariffs on India, noting how little profit US companies make in India; currently, only one publicly traded US company generates more than 20% of its revenue from India, compared to 25 companies with over 20% from China and 57 companies with more than 10% from China, according to Bloomberg’s equity screening tool.
On a personal note, the Ground News app was recently recommended to me. It provides a measure of the political bias of news stories by source, a useful tool to check out!
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.18 versus 7.18 yesterday
- CNY per EUR 8.29 versus 8.32 yesterday
- Yield on 10-Year Government Bond 1.71% versus 1.71% yesterday
- Yield on 10-Year China Development Bank Bond 1.79% versus 1.79% yesterday
- Copper Price +0.33%
- Steel Price +0.66%