Key News
Asian equities were largely higher overnight, as Hong Kong, South Korea, and Pakistan (+85% YTD) outperformed.
The late great market strategist Byron Wien was well known (and missed) for his annual “Ten Surprises” list of events markets we’re unprepared for. After the US close, we got a Wien-like moment as CBS News reported President Trump invited President Xi to his inauguration. The invitation is unexpected, though equally shocking is the invitation’s lack of Western media coverage, as I don’t see anything in the Wall Street Journal, Financial Times, Reuters, etc. Bloomberg News, which edited its original headline to include “longshot” in the invitation request, downplays the probability of Xi attending, though that’s why Xi should attend! Knowing that President Trump and President Xi recently spoke makes the probability not zero, in my opinion.
The Trump tariff narrative remains the most significant headwind to US institutional and professional investors allocating to China despite their CFA and MBA designations telling them to buy low (Chinese stocks, especially China tech) and sell high (US stocks). I’m not saying to sell all US stocks (or India or Japan), but why wouldn’t you take a piece of US tech profits and put in cheap China tech? A Xi inauguration invite acceptance might give these investors the confidence to dip their toes back in. Hong Kong trading desks didn’t mention that inauguration invite, indicating it was a non-factor in last night’s trading.
We wrote yesterday about the expansion of the individual pension system. Further details were released today by the government, stating that index funds and government bond funds will be included. Hong Kong and Mainland China grinded higher, led by growth stocks and consumer subsectors on chatter of holiday season vouchers and in anticipation of the post-CEWC release’s pro-consumption and fiscal policy expansion. After the close, CCTV provided the CEWC release with the key points being:
- “Implement more positive and proactive macro policies, expand domestic demand…stabilize the real estate market….promote the continuous recovery and improvement of the economy…”
A widely-followed Mainland media source noted the 2023 fiscal deficit ratio of 3% will likely be raised to 4% while long-dated government special government debt, and new special bond quota will be raised from 2024’s RMB 1 trillion and RMB 3.9 trillion to RMB 1.5/2 trillion and RMB 4.5 trillion. The article summarized the release below (highlight/bold by me):
- When deploying fiscal policy for next year, the conference said that a more proactive fiscal policy should be implemented, the fiscal deficit ratio should be increased, the issuance of ultra-long-term special treasury bonds should be increased, the issuance and use of local government special bonds should be increased, the fiscal expenditure structure should be optimized, and the bottom line of the “three guarantees” at the grassroots level should be firmly secured.
A Xinhua News article on the release also mentioned the following measures and policy directions:
- “Further expand domestic consumption”: “large-scale equipment renewal and old-for-new consumer goods.”
- Stock market: “establish swap facilities for securities, funds, and insurance companies, establish special re-loans for stock repurchases.”
- Real estate: Many places have adjusted their housing purchase restriction policies, abolished the standards for ordinary housing and non-ordinary housing, reduced the down payment ratio for housing loans, reduced the interest rates on existing mortgage loans, increased the deed tax preferential treatment in the housing transaction process, and reduced the transaction costs of second-hand housing.
Sounds optimistic to me!
Growth stocks led Hong Kong and Mainland China higher, as Hong Kong’s most heavily traded were Tencent, which gained +1.42%, Meituan, which gained +1.14%, Alibaba, which gained +2.09%, Xiaomi, which gained +3.78%, and JD.com, which fell -0.81%. Mainland investors sold a net $376 million worth of Hong Kong-listed stocks and ETFs. The ETFs favored by China’s “National Team”, which includes investment firms associated with sovereign wealth, had below-average volumes though interesting intra-day volume spikes whenever the market wobbled, indicating support.
There were some negative headlines coming out before the US market open, including Biden’s raising of Chinese solar tariffs and increasing semiconductor export controls.
The Hang Seng and Hang Seng Tech indexes gained +1.20% and +1.53%, respectively, on volume that increased +11% from yesterday, which is 121% of the 1-year average. 356 stocks advanced, while 136 declined. Main Board short turnover increased 3% from yesterday, which is 113% of the 1-year average as 14% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Growth and large caps outperformed value and small caps. The top sectors were staples +3.6%, tech +2.43%, and discretionary +2.69%, while healthcare -0.28%, energy -0.2%, and utilities -0.06%. The top sub-sectors were household products, industry conglomerates, and food/beverages, while coal, pharmaceutical, and REITs were the worst. Southbound Stock Connect volumes were 2X pre-stimulus levels as Mainland investors sold -$376mm of Hong Kong stocks and ETF with the Hong Kong Tracker ETF and Tencent large net sells, Meituan and CNOOC small net sells, Alibaba a significant/moderate net buy, Xiaomi, Sunac and China Mobile small net buys.
Shanghai, Shenzhen, and the STAR Board all closed higher by +0.85%, +1.05%, and +0.37%, respectively, on volume that increased +5% from yesterday, which is 185% of the 1-year average. 3,402 stocks advanced, while 1,584 declined. Growth and large caps outperformed value and small caps. All sectors, less energy -0.3% were positive, led by staples +1.91%, financials +1.2%, and industrials. The top sub-sectors were retail, office supplies, and leisure products, while steel, coal, and energy equipment were the worst. Northbound Stock Connect volumes were above average. CNY and the Asia dollar index had a small loss versus the US dollar. The Treasury bond curve steepened. Copper fell while steel gained.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
CNY per USD 7.26 versus 7.26 yesterday
CNY per EUR 7.62 versus 7.62 yesterday
Yield on 10-Year Government Bond 1.82% versus 1.82% yesterday
Yield on 10-Year China Development Bank Bond 1.89% versus 1.91% yesterday
Copper Price -0.11%
Steel Price +0.32%
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