Key News
Asian equities were mixed overnight on light volumes, and little significant news as South Korea posted consecutive +1% days for the first time since early July, while the Philippines underperformed.
There was little market-moving news for Mainland China and Hong Kong as top policymakers met at the China Economic Work Conference (CEWC). A Reuters article that the Chinese government will deliberately weaken the Renminbi to offset Trump tariffs is making the rounds. I find the article somewhat non-sensical as we know China’s interest rates are being cut, which, based on how many US Fed cuts occur, could weigh on the renminbi as interest rate differentials are a big factor in currency moves. China’s bond market agreed with me as the 10-year government bond yield hit a 52-week and all-time low of 1.84%. It’s amazing that China is easing and still has no foreign buyers due to Trump tariff concerns.
The CEWC sets the big picture economic plan, though usually is light on specific details as the Dual Sessions in March will finalize and approve the actual game plan. A strong word release is feasible due to investors’ singular focus on the topic and the recent Politburo release, which included President Xi in the title. In addition to further support for housing and local governments, expanding the consumption subsidies applied to automobiles/electric vehicles/hybrid and home appliances to consumer electronics, textiles, and restaurant dining would be logical.
Automobile manufacturing employs many people, with BYD employing more than 700,000 employees! Electronic companies, including computer hardware, mobile phones, laptops, and desktops, employ many people in addition to mom-and-pop and chain restaurants. We could also see structural issues addressed, such as modifying China’s minimal social safety net (healthcare, pension, and social security) and migrant worker rights. Coincidentally, a Mainland media source noted the Ministry of Human Resources and Social Security would expand the individual pension system (think IRA in the US) from the original 36-city pilot program to nationally.
Mainland Chinese investors appeared to think this was positive for consumer spending, as consumption sub-sectors outperformed, including retail, leisure products, household products, textile (maybe another area, though I’ve had trouble finding total employment), and liquor. Are Mainland investors telling us something about their consumer-focused buying? We shall see, though, that Hong Kong’s consumer weakness actually supports the idea.
Hong Kong slipped across the trading day as foreign investors’ sentiment remains in a funk, and they are waiting for tangible policy proof. Growth stocks were off except for electric vehicle (EV) stocks on strong November automobile sales of 3,316,000, which is up +11.7% year-over-year (YoY) and up +8.6% month-over-month (MoM), with 1.51 million EV and hybrid sales. Also, there is chatter about the Cybertruck being launched in China. The National Cyberspace Administration announced it will look at stock/finance recommendations on social media platforms, though this is focused more on individuals than the platforms. No concerns here on this issue. Mainland investors bought the Hong Kong dip with a healthy $937 million of Hong Kong stocks and ETFs today. Light volumes in the National Team’s favorite ETFs, though 2,446 Mainland companies have purchased RMB 160 billion ($336 billion) via buyback in 2024.
The Hang Seng and Hang Seng Tech fell -0.77% and -1.31%, respectively, on volume down -42.79% from yesterday, which is 109% of the 1-year average. 292 stocks advanced, while 192 declined. Main Board short turnover decreased by -44% from yesterday, which is 109% of the 1-year average, as 15% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Value and large capitalization stocks “outperformed”/fell less than growth and small capitalization stocks. The top sectors were utilities, up +1.84%, materials, up +0.93%, and consumer staples, up +0.67%, while technology fell -1.15%, real estate fell -1.10%, and consumer discretionary fell -1.08%. The top sub-sectors were steel, healthcare equipment, and food, while industry conglomerates, consumer services, financial services, and insurance were the worst. Southbound Stock Connect volumes were 1.5x pre-stimulus levels as Mainland investors bought +$937 million of Hong Kong stocks and ETFs, with the HK Tracker ETF a large net buy, China Mobile and Alibaba large/moderate net buys, Tencent and Meituan were moderate net sells, and Xiaomi and Sunac were small net sell.
Shanghai, Shenzhen, and the STAR Board were mixed +0.29%, +0.76%, and -0.37%, respectively, on volume down -19% from yesterday, which is 177% of the 1-year average. 3,810 stocks advanced, while 1,206 declined. Growth and small capitalization stocks outperformed value and large capitalization stocks. The top sectors were energy, up +1.33%, real estate, up +0.96%, and materials, up +0.53%, while financials fell -1.27%, communication services fell -0.94%, and industrials fell -0.61%. The top sub-sectors were soft drink, forest, and leisure products, while insurance, banking, and land transport were the worst. Northbound Stock Connect volumes were almost 1.5X average. CNY and the Asia dollar index fell versus the US dollar. Treasury bonds rallied. Copper rose while steel fell.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.26 versus 7.25 yesterday
- CNY per EUR 7.62 versus 7.64 yesterday
- Yield on 10-Year Government Bond 1.82% versus 1.85% yesterday
- Yield on 10-Year China Development Bank Bond 1.91% versus 1.92% yesterday
- Copper Price +0.11%
- Steel Price -0.29%
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