Key News
Asian equities were mixed overnight despite a very strong US dollar as the US 10-year Treasury Year Yield rose to over 4.6%, while Japan and India were higher, and Hong Kong, Indonesia, and the Philippines underperformed.
The Renminbi’s weakness, as it fell by -0.99%, garnered media attention even though the Yen fell by -1.65%, the South Korea Won fell by -1.50%, and the Euro fell by -2.01%. Trump’s win and potential for a Red Sweep were the sole focus overnight, though Friday’s post-NPC press conference and stimulus announcement are arguably far more important. A Trump win and threat of tariffs raise the necessity of boosting the domestic consumption economy as quickly as possible. Investors are taking a Neanderthal approach of “Trump Wins equals Bad for China.”
The China tariff news is strangely only viewed through the prism of what it does to China’s economy and not what it does to US retailers reliant on Chinese exports. The effect tariffs would have on inflation, nor the potential for retaliation on US multinationals who generate significant revenue in China. Trump and Xi appear to get along with one another, the US and Chinese governments did a trade during Trump’s first term, and based on how inter-dependent the US and Chinese economies are doing another deal makes sense. Think Elon Musk will help navigate the US & China discussions? I think so!
Mainland China was up in local currency, though off in US dollar terms. Hong Kong’s growth stocks were off on foreign investor Neanderthal sentiment, though Mainland investors took advantage of buying at a discount, buying $2.763 billion of Hong Kong stocks and ETFs, with the Hong Kong Tracker ETF seeing a very significant large net buy. Today was the 5th largest net buy ever as Southbound Stock Connect since December 2016 as Southbound trading accounted for 47% of Hong Kong trading today! Remember, Hong Kong and the Mainland market are still working off their overbought technical situation after their massive rally.
An element of the Mainland China market strength was news that the People’s Bank of China (PBOC) President Pan Shiyi reported to the National People’s Congress (NPC) on the “problems faced by the economy and finance.” That was very key as the government is acknowledging the challenges the economy faces. He proposed the next steps should be “adhering to a supportive monetary policy stance, increasing the countercyclical adjustment of monetary policy, and creating a good monetary and financial environment for stable economic growth and high-quality development.” The best tariff negotiating tool for the Chinese government is a strong stimulus in order to dampen the pre-US China trade deal tariff threat. South China Real Estate News reported October real estate transactions increased by +70% month over month, with 22,000 apartments sold. Positive baby steps! Alibaba reported they bought more than 587,934 ADRs in the month of October. Wonder when they run out of ADRs to buy?
The Hang Seng and Hang Seng Tech fell by -2.23% and -2.54%, respectively, on volume up +27.61% from yesterday, which is 175% of the 1-year average. 105 stocks advanced, while 385 declined. Main Board short turnover increased by +97.53% from yesterday, which is 195% 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 small capitalization stocks fell less than growth and large capitalization stocks. All sectors were negative, led lower by consumer discretionary down -3.33%, technology down -2.63%, and financials down -2.32%. All sub-sectors were down, led lower by retailing, consumer durables, and automobiles. Southbound Stock Connect volumes were 2X the average as Mainland investors bought $2.763 billion of Hong Kong stocks and ETFs, with the HK Tracker ETF a massive net buy, Tencent and Meituan moderate net buys, while Alibaba, CNOOC, Xiaomi, Sunac, and SH Electric were small net buys.
Shanghai, Shenzhen, and the STAR Board were mixed, -0.09%, +0.10%, and +0.19%, respectively, on volume up +11.22% from yesterday, which is 169% of the 1-year average. 2,590 stocks advanced, while 2,360 declined. Growth and large capitalization stocks outperformed growth and small capitalization stocks. The top sectors were real estate, up +1.07%, and communication services, up +0.35%, while energy fell -1.93%, consumer discretionary fell -1.86%, and utilities fell -1.73%. The top sub-sectors were power generation equipment, agricultural and energy equipment, while household appliances, insurance, and motorcycles were the worst. Northbound Stock Connect volumes were high, just over 2X the average. CNY and the Asia dollar index fell versus the US dollar. Treasury curve steepened. Copper gained while steel fell.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.10 versus 7.10 yesterday
- CNY per EUR 7.74 versus 7.74 yesterday
- Yield on 10-Year Government Bond 2.11% versus 2.11% yesterday
- Yield on 10-Year China Development Bank Bond 2.19% versus 2.19% yesterday
- Copper Price +0.58%
- Steel Price +1.21%