Key News
Asian equities were mixed overnight on light volumes and little market-moving news as Mainland China underperformed.
Country Garden Holdings, a developer focused on lower tier cities, was the most traded stock in Hong Kong overnight and declined nearly -8%. The developer’s pre-sales have been underperforming in recent months, likely following a bounce on relaxed down payment requirements in certain regions. Lower tier cities As a result, the developer is facing serious liquidity issues going into the second half. Nonetheless, our expert contacts believe that a restructuring is in order, which should receive government support. Meanwhile, Greenland Holdings, another developer, recently defaulted again on its already-restructured bonds.
Presale pain in real estate is another catalyst for policymakers to get moving. In speaking with an economist from one of the largest investment banks in China, he said that real estate comes before everything in China’s recovery. Government support and the lifting of currently strict down payment requirements and other restrictions is paramount to power China’s recovery further. We believe this broad-scale policy change is coming given recent stress and the fact that such conditions have been relaxed on a regional, temporary basis across the country. Nonetheless, as Country Garden’s challenges show, lower tier cities will require more robust policy support than higher tier cities.
Alibaba, JD.com, and Trip.com were up overnight, leading internet stocks higher in preparation of earnings season, which will kick off this week. Alibaba will report Q2 on Thursday and JD and Tencent will report next Wednesday. Positive surprises for these consumer-oriented companies may catch many investors off guard.
Residents of Hebei province are dealing with the fallout from massive flooding that has rendered multiple roads and bridges unusable as well as disrupted electricity supply. Government messaging overnight was mostly focused on disaster relief, taking a break from economic policy discussions to deal with this emergency.
The South China Morning Post (SCMP) is reporting that Israel’s Netanyahu is seeking Beijing’s help in restarting stalled normalization negotiations with Saudi Arabia. SCMP says that Netanyahu may visit Beijing later this year. This could be a watershed moment for US-China relations and China’s diplomatic efforts across the globe. If China can resolve disputes between two US allies, that could bolster its diplomatic standing.
The Hang Seng and Hang Seng Tech indexes diverged to close -0.01% and +0.05%, respectively, on volume that decreased -31% from Friday. Mainland investors bought a net $566 million worth of Hong Kong stocks overnight via Southbound Stock Connect.
Shanghai, Shenzhen, and the STAR Board all closed lower by -0.56%, -0.66%, and -0.71%, respectively, on volume that decreased -16% from Friday. Foreign investors sold a net -$319 million worth of Mainland stocks overnight via Southbound Stock Connect.
Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.18 versus 7.17 Friday
- CNY per EUR 7.91 versus 1.90 Friday
- Yield on 1-Day Government Bond 1.40% versus 1.40% Friday
- Yield on 10-Year Government Bond 2.65% versus 2.65% Friday
- Yield on 10-Year China Development Bank Bond 2.75% versus 2.75% Friday
- Copper Price +0.32% overnight
- Steel Price +0.40% overnight
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