Key News
Asian equities rebounded following Friday’s weaker US inflation data on light holiday week volumes and little news.
Seinfeld’s George Costanza would be proud that, on Festivus Day, Hong Kong and Mainland China underperformers outperformed while outperformers underperformed, i.e. the value factor outpaced the growth factor. In Hong Kong, Exhibit A would be Tencent which fell-1.45% and Meituan, which fell -1.89%. Meanwhile, banks were the top-performing subsector.
It was not all bad news for growth stocks. Alibaba gained +1.12% and Baidu gained +3.17% on reports the company’s AI is still in the running to operate China’s iPhones. Tencent’s WeChat gifting function is being incorporated by East Buy, which gained +5.87%, though Weimob fell -3.5% after a significant run-up.
High-yielding value sectors and subsectors outperformed, as China’s 10-Year Treasury bond hit another 52-week and all-time low of 1.71%, leading to speculation that investors will finally pivot away from bonds. Mainland media spoke about this potential pivot in several articles, though Mainland investors’ behavior appears to be stuck in a funk.
The “National Team”, which includes investment firms associated with sovereign wealth, appeared to be active in the Mainland market, as several favored ETFs had above average volumes. Mainland investors bought a net $340 million worth of Hong Kong-listed stocks via Southbound Stock Connect. Premier Li’s China tour garnered some attention though it was a light day overnight.
The Saturday Wall Street Journal article on the House and Senate passage included the line “The bill strips out a series of other provisions that were included in the bipartisan deal that Trump shot down, such as restrictions on investments in China”. Having noticed that the 2nd post-Trump/Musk House bill/continuing resolution no longer included the outbound China investment restrictions, we wrote about it on Friday expecting other investors and the media to connect the dots. No such luck as no journalist has written about the outbound China investment provision being removed. Isn’t this a clear signal that Trump and his advisor Musk want to engage with China? Wasn’t Trump’s inauguration invitation to Xi another flashing green light? Sparing TikTok is not just about China, though it is still yet another signal of President Trump’s olive branch to China. After four years of negative government announcements that were heavily covered by the media, I suppose changing the narrative will take some time.
The Hang Seng and Hang Seng Tech indexes rose +0.82% and +0.31%, respectively, on volume that decreased -28% from Friday, which is 96% of the 1-year average. 310 stocks advanced while 170 stocks declined. Main Board short turnover decreased -29% from Friday, which is 85% 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). The value factor and large caps gained more than growth factor and small caps. The top-performing sectors were Financials, which gained +2.57%, Industrials, which gained +1.91%, and Utilities, which gained +1.48%. Meanwhile, Communication Services was the worst-performing sector, falling -0.91%. The top-performing subsectors were banks, machinery, and consumer staples. Meanwhile, consumer durables, software, and consumer services were among the worst-performing. Southbound Stock Connect volumes were 1.5x pre-stimulus levels as Mainland investors bought a net $340 million worth of Hong Kong-listed stocks and ETFs, including ICBC, which was a large net buy, China Mobile, CCB, Weimob, Tencent, and Xiaomi. However, Meituan was a large net sell.
Shanghai, Shenzhen, and the STAR Board fell -0.50%, -2.29%, and -1.25%, respectively, on volume that increased +1.04% from Friday, which is 147% of the 1-year average. 527 stocks advanced while 4,567 declined (notice the declines sequence!). The value factor and large caps fell less than the growth factor and small caps. The top-performing sectors were Utilities, which gained +1.62%, Energy, which gained +1.01%, and Financials, which gained +0.66%. Meanwhile, the worst-performing sectors were Real Estate, which fell -1.89%, Communication Services, which fell -1.59%, and Technology, which fell -1.55%. The top-performing subsectors were precious metals, banking, and oil & gas. Meanwhile, education, leisure products, and cultural media were among the worst-performing. Northbound Stock Connect volumes were just above average. CNY and the Asia Dollar Index fell versus the US dollar. The Treasury bond curve flattened. Copper and steel rose.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
CNY per USD 7.30 versus 7.30 Friday
CNY per EUR 7.59 versus 7.59 Friday
Yield on 10-Year Government Bond 1.70% versus 1.70% Friday
Yield on 10-Year China Development Bank Bond 1.76% versus 1.78% Friday
Copper Price 0.41%
Steel Price 0.03%
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