China last night
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Important news
Asian equities had a positive day with Hong Kong and China outperforming, while India had a day off for Diwali.
Today’s catalyst was yesterday’s news that the PBOC (People’s Bank of China) and SAFE (State Administration of Foreign Exchange) met to “strengthen departmental cooperation to ensure the healthy development of the stock market, the bond market and the… to maintain the real estate market”. Sounds like they understand the challenges/risks facing China’s economy and are ready to address them. “…maintain reasonable growth in the total supply of money and credit, increase support for key areas such as scientific and technological innovation…”. Sounds like a mix of fiscal and monetary support. In addition, they stated, “We will promote a high-level two-way opening of the financial market and support the continued prosperity and development of the international financial center Hong Kong.” .
We have proposed our “back to business” thesis that after the congress the government will move from securing a job for the next five years to securing the economy and hopefully improving diplomatic relations. The new State Council also met to review the party congress, which again focused heavily on the economy in President Xi’s speech last Sunday. Markets understood the message and rallied higher, but fell from their daily highs on reports of a Covid outbreak in a district in Wuhan. This district is under quarantine/lockdown while Beijing’s Universal amusement park closes as Beijing reported seventeen new Covid cases today. Keep in mind that Covid is reigning across China, although we are not seeing any lockdowns affecting economic fallout.
Healthcare was the top performer in both China +6.97% and Hong Kong +4.78% after it was announced yesterday that an inhalable vaccine has been approved for use in Shanghai. CanSino Biologics (6185 HK) was up +20.6% in Hong Kong as investors realized that it is the involved company. Hong Kong internet stocks performed well, with Tencent +2.52% the most heavily traded Hong Kong company after enjoying another strong day of net buying by mainland investors via Southbound Stock Connect. Meituan gained +5.02% even though Alibaba HK was down -2.04% amid early reports of strong pre-sales on Singles Day. Short activity has slowed over the past few days, although several individual stocks have seen short selling turnover increase.
An interesting discovery on Monday was the rumor that ADR funds were going into liquidation. It turns out that an ETF provider has removed Tencent, BaiduBIDU, and Weibo from their ETFs due to a change in their ESG rating. The overall sale wasn’t that big though, the rumor clearly contributing to Monday’s collapse. For me, the move is another strong contrarian signal. The other big news today was that the CNY was up +1.3% against the US Dollar which closed at 7.17 from yesterday’s 7.31 (remember the CNY quote is different than most currencies as it is quoted at $1 = 7.17 renminbi, so confusingly a fall is an appreciation). The chatter is that Chinese banks were sellers of US dollars. Interest rates drive currency prices, so you can’t change the price significantly over the long term, but the movement slows the decline.
Hang Seng and Hang Seng Tech were up +1% and +2.48% on volumes of -8.85% from yesterday, up 106% from the 1-year moving average. 390 stocks rose while 99 stocks fell. The motherboard’s short sale turnover fell -4.94%, which is 96% of the 1-year moving average, as 16% of the trade was short. Value and growth factors were mixed as small caps outperformed large caps. Top sectors were Healthcare up +4.79%, Technology up +3.33% and Communications up +2.09%, while Real Estate was down -1.59%, Energy -1.03% and Finance fell by -0.27%. The top sub-sectors were engineering hardware, healthcare equipment, auto parts and semi-manufactured goods, while energy, banks and real estate were among the worst performers. Southbound Stock Connect volumes were high as mainland investors bought $644 million worth of Hong Kong stocks, while Tencent saw strong buying at HK$1.456 billion during the half of Monday. Meituan saw strong buying at HK$1.246 billion, Wuxi Biologics modest net buying and Kuaishou small net buying.
Shanghai, Shenzhen and STAR Board were up +0.78%, +1.79% and +3.29% respectively on volume +13.65% from yesterday, up 93% of the 1-year moving average. 3,670 shares rose while 883 shares fell. Growth factors outperformed value factors, while small caps outperformed large caps. Top sectors were Health Care +7.14%, Technology +5.35% and Communications +3.75%, while Real Estate fell -0.52%. The top subsectors were Chemicals, Software and Pharmaceuticals, while Agriculture, Coal and Real Estate were among the worst performers. Northbound Stock Connect volumes were moderate as overseas investors bought $478 million worth of mainland stocks. The CNY gained +1.3% against the US Dollar which closed at 7.17, while Treasuries and Copper gained +0.35%.
MSCI China All Shares Index
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national performance
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stock performance
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Hong Kong Top 10
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China’s top 10
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Exchange rates, prices and yields from the last night
- CNY per USD 7.17 vs 7.31 yesterday
- CNY per EUR 7.19 vs. 7.21 yesterday
- 10-year Treasury yield 2.70% vs. 2.72% yesterday
- China Development Bank 10-year bond yield 2.86% vs. 2.87% yesterday
- Copper price +0.35% overnight
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