Key News
Asian equities were higher, except for Hong Kong and Mainland China, which were off following President Trump’s 10% tariff threat, which prompted profit-taking after six days of gains.
I would have thought that a 10% tariff was expected or would have been cheered, as 10% is better than 60%, which is why today’s market action could simply have been profit-taking. There was a fairly broad sell-off in both markets, less so because of Trump’s AI infrastructure effort called Stargate, which was cited for the outperformance of technology hardware and semiconductor stocks. CATL fell -2.34% after yesterday’s post-close financial result guidance, while New Oriental Education plunged by -24.20% on weak results. All of the growth stocks that outperformed yesterday underperformed today. Mainland investors bought the dip with $535 million of net buying.
The most important thing all day occurred after the close. It was announced that at 9 am tomorrow, a press conference titled “Implementation Plan for Promoting the Work of Entry of Long-Term Capital into the Market” will be held by the CSRC’s Governor Wu Qing, the Ministry of Finance, Ministry of Human Resources and Social Security, the PBOC, and State Administration of Financial Supervision. Topics to be discussed include:
- Increase the proportion & stability of A-share investment of commercial insurance funds:
- “guide large state-owned insurance companies to increase the investment scale and actual proportion of A-shares.”
- Optimize the investment management mechanism of the National Social Security Fund & the basic pension fund:
- “increase the proportion of equity assets invested in the national social security fund.”
- Improve the market-oriented investment operation level of enterprise (job) industry pension fund:
- “Gradually expand the coverage of enterprise pension. Support qualified employers in exploring the opening of individual investment options for enterprise pension.”
- Increase the scale and proportion of equity funds:
- “guide and urge the public fund managers to steadily increase the scale and proportion of equity funds.”
- Optimize the investment ecology of the capital market:
- Guide listed companies to increase share buybacks and implement the Policy of multiple dividends a year. Promote listed companies to increase the use of share buy-back and increase the use of the loan tool.
I can read your mind. The National Social Security Fund (NSSF) has RMB 2.9 trillion (USD $396 billion) of assets under management as of year-end 2023, with approximately 14%/RMB 413 billion (USD $56 billion) invested in stocks. Today, the turnover in the Mainland market was RMB 1.129 trillion (USD $154 billion). It was interesting that the Shanghai and New York Stock Exchange’s value traded is almost the same at USD $64 billion. The limit on stocks in the NSSF is 40%, so you don’t need me to do the math for you.
Also in the news was Central Huijin’s reporting of their active ETF positions as of the end of the year. They don’t give the value, so give me some time, though media reports noted an increase in several funds. For several of their favorite ETFs, Central Huijin holds 40% to 50% of shares outstanding, so I imagine the total is a big number (USD +$150 billion). It sounds eerily similar to what Japan did in 2010 to get the stock market going by buying ETFs. It took a few years, but the market bottomed in 2011/2012, with the Nikkei 225 up 381% since then. Coincidentally, Japan’s population peaked in 2011, so don’t give me this demographic time bomb narrative. Fast forward to today, and they are in the ETF market! Since then, as their largest shareholder, the BoJ has been reforming companies to make them more shareholder-friendly. Coincidentally, today, the CSRC reported that listed companies issued RMB 2.4 trillion (USD $328 billion) of dividends while buying back RMB 147.6 billion (USD $20 billion) of stock in 2024. Spooky!
The Hang Seng and Hang Seng Tech fell -1.63% and -2.40%, respectively, on volume down -8.56% from yesterday, which is 100% of the 1-year average. 94 stocks advanced, while 405 declined. Main Board short turnover decreased by -6.27% from yesterday, which is 117% of the 1-year average, as 18% 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 fell less than growth and small capitalization stocks. Healthcare was the only positive sector, up +0.18%, while consumer discretionary fell -3.43%, real estate fell -2.29, and consumer staples fell -2.09%. The top sub-sectors were consumer durables, semiconductors, and household products, while household products, consumer staples, and consumer discretionary were the worst performers. Southbound Stock Connect volumes were at 1.5X pre-stimulus levels as Mainland investors bought $535 million of Hong Kong stocks and ETFs, with SMIC a moderate/large net buy, ZTE, XPeng, Xiaomi, Tencent, and China Mobile a small net buy, Alibaba, Meituan and CNOOC a small net sell.
Shanghai, Shenzhen, and the STAR Board fell -0.89%, -0.99%, and -0.10%, respectively, on volume down -5.78% from yesterday, which is 105% of the 1-year average. 499 stocks advanced, while 4,037 declined. Value and small capitalization stocks “outperformed”/fell less than growth and large capitalization stocks. Technology stocks gained +0.94%, and material stocks gained +0.07%, as they were the only positive sectors, while real estate fell -3.28%, consumer staples fell -1.54%, and consumer discretionary fell -1.25%. The top sub-sectors were precious metals, gas, and electronic components, while leisure products, real estate, and household products were the worst. Northbound Stock Connect volumes were just above average. CNY and the Asia dollar index were slightly higher versus the US dollar. Treasury bonds fell. Copper and steel fell.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.26 versus 7.28 yesterday
- CNY per EUR 7.58 versus 7.56 yesterday
- Yield on 10-Year Government Bond 1.66% versus 1.65% yesterday
- Yield on 10-Year China Development Bank Bond 1.68% versus 1.68% yesterday
- Copper Price -0.12%
- Steel Price -0.89%
Read the full article here