Key News
Asian equities were lower on Middle East tension and a stronger US dollar except for Japan, which rose on a weaker yen as Mainland China is on holiday until next Tuesday. South Korea was closed for National Day, and Taiwan for a typhoon again.
Yes, Hong Kong was lower/took a breather from the recent epic run, though the Hang Seng and Hang Seng Tech closed well above intra-day lows of -4.46% and -7.45%, indicating some bought the dip. Yesterday’s top performers, such as internet and real estate, were today’s worst performers. Investors understandably took some profits after the Hang Seng jumped 31% from September 11th and +50% since the January 22nd low. Before today’s pullback, the Hang Seng Tech was up +50% since September 9th and +71% since its bottom on January 31st.
Bloomberg News had a good piece articulating why investors bought today’s dip as former Ministry of Finance economist Jia Kang stated the Chinese government could issue RMB 4 trillion to RMB 10 trillion of government bonds to “…lift confidence by drastically raising government investment in pubic projects”. Issuing long-term government debt at these low interest rates makes sense. RMB 7 trillion of stimulus would be 5.5% of GDP (China’s GDP is $18 trillion), higher than our estimates/chatter of 1.5% to 3% of GDP. Yes, the monetary policy bazooka has been fired. However, it is critical to understand fiscal policy support hasn’t been fully articulated, though it is coming based on last Thursday’s release from President Xi and the Politburo. That would mean there is more likely to be more good news in the coming weeks, right?
As China’s economy recovers, Chinese economic data will improve as year-over-year comparisons make for easy comparisons, i.e., more good news. Sell-side analysts have only started upgrading price targets for a few internet names. At the same time, most strategists haven’t made any significant China overweight adjustments, nor have any economists reversed their recent downgrades of China‘s GDP. Those positive developments will happen over time, ie, more good news. Are investors prepared for this? I don’t think so, as Q3 review/Q4 outlook investment committee meetings, board meetings, and trustee meetings are taking place.
The re-rating of Chinese equities is in a very early stage as pullbacks/corrections, such as today, will happen, which is a good thing/healthy. Next Tuesday will be must watch TV as the Mainland market and Southbound Stock Connect reopen. It is worth noting that Meituan was Hong Kong’s most heavily traded by value as the stock bucked the downdraft +3.96% at a level 3X the pre-rally levels, trading 78mm shares versus its 1-year average of 37mm. Hong Kong still traded 282% of the 1-year average. As we reported yesterday, brokerage stocks also bucked the downdraft on reports of sixty brokerage houses remaining open to open new accounts. Yicai Global reported that the number of Chinese traveling by rail hit a record on Tuesday with 21.45mm railway trips as an anticipated 175mm passenger trips are expected over the 10-day national holiday. A Mainland media source noted that over 1 billion movie tickets have been sold thus far during the national holiday.
The Hang Seng and Hang Seng Tech fell -1.47% and -3.46%% on volume -28.5% from yesterday, which is 282% of the 1-year average. 66 stocks advanced, while 432 declined. Main Board short turnover declined -23.08% from yesterday, which is 249% 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 small caps fell less than growth and large caps. All sectors were negative: real estate -5.37%, healthcare -3.22%, and staples -3.16%. All sub-sectors were negative, less food/staples led lower by diversified finance, real estate, and consumer durables. Southbound Stock Connect is closed until next Tuesday.
Shanghai, Shenzhen, and STAR Board are closed until next Tuesday.
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