Asian equities were mixed overnight as Thailand and the Philippines outperformed, while Hong Kong and Mainland China underperformed after strong moves last week. Japan was closed for the New Year’s holiday.
The main culprit was the “official” December Manufacturing PMI data missing expectations of 49.6 with a release of 49 versus November’s 49.4. PMIs are a diffusion index comparing month-over-month data with readings below 50 marking a contraction/growth slowing. CNY fell -0.59% versus the US dollar to 7.14 from Friday’s 7.10 (unlike most currencies, CNY is quoted as US $ divided by CNY, i.e., the price of 1 US dollar in CNY). Non-manufacturing improved in December to 50.4 from November’s 50.2, though missed expectations of 50.5. Caixin’s Manufacturing PMI increased to 50.8 from November’s 50.7, beating expectations of 50.3. Caixin’s PMI survey has fewer respondents from smaller companies versus the National Bureau of Statistics “official” PMI which has a large number of respondents from bigger companies.
Not cited as a culprit, though I suspect it was a factor, was news that Dutch semiconductor manufacturing equipment maker ASML has implemented a sale ban to Chinese customers in conjunction with the US government. I wonder how much of the “AI” craze is simply Chinese customers stockpiling chips and equipment prior to potentially more bans. Also not cited were thirty US EVs from GM, Tesla, Volkswagen, Audi, BMW, Ford, and Nissan, losing their $7,500 tax credit due to components being made in Mainland China though the EVs are made in the US, leaving just nineteen EVs with the tax credit. Despite claiming to promote EVs, the Biden Administration’s move hinders the space while also hurting Chinese companies unaffiliated with the Chinese government which sets a bad precedent IMO.
Real estate was the worst sector in Mainland China and Hong Kong, both falling -3.73%, as sales from the top 100 developers fell -17.3% in 2023 versus 2022, while New Year’s weekend sales fell -26% year over year. Travel data during the New Year’s weekend increased +155% year over year, with 128 million passenger trips made, according to Reuters. After the close, Shanghai adjusted the minimum down payment ratio while Dongguan eliminated the mortgage rate’s lower limit for first-time home buyers.
President Biden and Xi exchanged New Year greetings today in a small diplomatic win. President Xi’s New Year speech acknowledged “difficulties or challenges,” though it implied a better economy in 2024. The market’s response was not a strong sign of confidence, though last week was a strong one. Foreign investors sold a healthy -$738 million of mainland stocks, with mega/large-cap growth stocks favored by domestic and foreign investors underperforming. Industrial Bank (601166 CH), not mega bank ICBC, fell -8.51% today after Friday’s strange +9.97% rise. Hong Kong’s most heavily traded were Tencent +1.02% as the company’s ambitious buyback garners attention, Alibaba HK -1.19% though after the close the company announced spending $11.7 billion buying back 897 million shares in another shareholder-friendly move, NetEase +3.91%, Meituan -3.05%, and BYD -2.33% despite selling 341,000 NEVs in December which brings their 2023 total to more than 3 million. BYD’s strong results appeared to weigh on other EV automakers. Mainland investors bought the Hong Kong dip via Hong Kong ETFs.
The Hang Seng and Hang Seng Tech fell -1.52% and -1.32% on volume +1.96% from Friday, which is 73% of the 1-year average. 123 stocks advanced, while 376 declined. Main Board short turnover increased by +26.58% from Friday, which is 57% of the 1-year average, as 13% of turnover was short turnover (remember HK short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The value factor and large caps “outperformed”/fell less than the growth factor and small caps. The top sectors were energy +1.26%, communication +0.85%, utilities +0.35%, while real estate -4.46%, staples -3.44%, and healthcare -2.8% were the worst. The top sub-sectors were energy, media, and software, while semis, auto, and pharma were the worst. Southbound Stock Connect volumes were moderate/light as Mainland investors bought $493 million of Hong Kong stocks and ETFs, with the CNOOC a large net buy, Hong Kong Tracker ETF and HS Tech ETF were bought small, while Meituan, ICBC, and SMIC were small net sells.
Shanghai, Shenzhen, and STAR Board fell -0.43%, -0.76%, and -1.43% on volume -4.12% from Friday, which is 90% of the 1-year average. 2,636 stocks advanced, while 2,237 stocks declined. The value factor and large caps “outperformed”/fell less than the growth factor and small caps. Energy and utilities were the only positive sectors, +1.97%, and +1.09%, while real estate -3.7%, staples, and tech were both -2.82% were the worst. The top sub-sectors were coal, marine, and environmental protection, while office supplies, liquor, and auto were the worst. Northbound Stock Connect volumes were light/moderate as foreign investors sold -$738mm of mainland stocks with Cypc, Changan Auto, and Midea small net buys, while BYD, Kweichow Moutai, and CATL were moderate/small net sells. CNY and the Asia dollar index fell versus the US dollar. Treasury bonds sold off, steel gained, and copper fell.
- CNY per USD 7.14 versus 7.10 Friday
- CNY per EUR 7.83 versus 7.85 Friday
- Yield on 10-Year Government Bond 2.56% versus 2.55% Friday
- Yield on 10-Year China Development Bank Bond 2.72% versus 2.69% Friday
- Copper Price -0.22%
- Steel Price +0.90%