Asian equities were broadly lower following the US’ hot jobs release, which reduces the probability of US Fed interest rate cuts in the near term as higher for longer weighed on investors’ sentiment. Japan was closed for Respect for the Aged Day as Hong Kong and Mainland China both had weak sessions.
CNY and the Asia Dollar Index fell as the US dollar strengthened, with the US’ 10-Year Treasury yield back above 4%. The ratio of Mainland stocks’ dividend yield divided by the 10-Year Chinese Treasury Yield is almost back to its all-time high since data became available in 2010. The Shanghai Composite, at 2,887, is sitting on lows that were previously held in April 2022 and October 2022. The Shenzhen Composite, at 1,740, is below its April 2022 low. Meanwhile, the Hang Seng and Hang Seng Tech indexes are still above their October 2022 lows.
Hong Kong and Mainland China slid all day. A Reuters story that Mainland mutual fund families can increase mutual fund redemptions accelerated selling. Mainland Chinese fund families mainly distribute through private banks and big wealth management platforms. Both sides agreed to work on orderly money flows in and out of funds in response to the change. However, the reported move to allow fund families to permit net selling (i.e. more redemptions than purchases) led to some concerns.
All sectors in Hong Kong and Mainland China were negative. In Shanghai and Shenzhen, 373 stocks advanced, and 4,600 saw declines. Within the broad Hang Seng Index, only 52 stocks advanced, while 449 fell.
Mainland actively managed mutual funds have struggled to add value (i.e. “alpha”), though passive Mainland equity ETFs have seen robust inflows.
Some pointed to wealth manager/shadow bank Zhongzhi Group’s bankruptcy as weighing on sentiment overnight.
There was also an increase in tit-for-tat tariffs following China’s European brandy tariff following the EU’s investigation of China-made electric vehicles (EVs). The Wall Street Journal noted that Nvidia’s lower-power semiconductor chips are not being well-received by Chinese customers following Biden-imposed export hurdles, which weighed on Chinese semiconductor companies as though they are beneficiaries, according to the article. Remarkably, Nvidia is higher today in US trading.
Airlines and travel stocks were down after the Alaska Airline’s 737 MAX9 incident on Friday despite there being no MAX9s in China. Hong Kong’s most heavily traded stocks by value were Tencent, which fell -1.44%, Alibaba, which fell -1.81%, and Meituan, which fell -4.89%.
EV stocks were off on continued concerns of a price war.
All in all, it was an ugly day, reinforcing our crisis of confidence or “buyers’ strike” argument from last week. Today’s move cannot be ignored by policymakers, especially with major indices sitting at support levels.
The Hang Seng and Hang Seng Tech indexes fell -1.88% and -2.99%, respectively, on volume that increased +3.19% from Friday, which is 81% of the 1-year average. 52 stocks advanced while 449 fell. Main Board short turnover increased by +15.42% from Friday, which is 92% of the 1-year average, as 19% 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” (i.e. fell less than) the growth factor and small caps. All sectors were down, including Health Care, which fell -2.83%, Consumer Staples, which fell -2.82%, and Technology, which fell -2.67%. The top-performing subsectors were telecommunication services, media, and business services. Meanwhile, pharmaceuticals, retail, and software services were among the worst-performing. Southbound Stock Connect volumes were light/moderate as Mainland investors sold a net -$183 million worth of Hong Kong-listed stocks and ETFs, including energy giant CNOOC, China Mobile, and China Telecom, which were small net buys, while Tencent, the Hong Kong Tracker ETF, and XPeng were small/moderate net sells.
Shanghai, Shenzhen, and the STAR Board fell -1.42%, -1.88%, and -2.88% on volume -10.68% from Friday, which is 75% of the 1-year average. 373 stocks advanced, while 4,600 declined. The value factor and large caps “outperformed” (i.e. fell less than) the growth factor and small caps. All sectors were negative including Technology, which fell -2.52%, Real Estate, which fell -1.97%, and Consumer Discretionary, which fell -1.94%. CNY and the Asia Dollar Index fell versus the US dollar. The Treasury curve flattened while copper and steel were off.
- CNY per USD 7.16 versus 7.15 yesterday
- CNY per EUR 7.85 versus 7.83 yesterday
- Yield on 1-Day Government Bond 1.52% versus 1.52% yesterday
- Yield on 10-Year Government Bond 2.51% versus 2.52% yesterday
- Yield on 10-Year China Development Bank Bond 2.71% versus 2.71% yesterday
- Copper Price -0.16%
- Steel Price -1.25%