Key News
Asian equities were largely lower to start the week, as Russia headlines dominated the weekend. Mainland China was off as AI profit-taking escalated into a stampede and the renminbi weakened versus the US dollar to 7.23 CNY per USD from Wednesday’s pre-holiday 7.17 CNY per USD.
China’s four-day Dragon Boat Festival data had something for the bulls and bears as trips and spending increased year-over-year, though remained below pre-pandemic, 2019 levels. Comparisons versus May’s Labor Day holiday were lower, which the nattering nabobs of negativity were quick to point out. Labor Day was a three-day holiday, likely leading to a week-long break and thus more international travel than the Dragon Boat’s four-day weekend. You are unlikely to read in Western media that total holiday domestic tourist volume was up +119% versus 2019, driven by 106 million domestic tourists, while airline and movie ticket sales were strong.
Once again, official financial media wrote about stimulus coming in the form of a bank reserve requirement ratio cut as several economists called for support for domestic consumption. Investors have tired of the crying wolf of policymakers as they demand action. This week’s “official” PMI will be released Wednesday, and the Caixin Manufacturing PMI, which will be reported on Friday, could provide the catalyst. The Yuan’s decline along with Shanghai closing below 3,200 and Shenzhen sitting at the 2,000 level should receive the attention of policymakers as domestic investors reduce risk despite falling yields.
Hong Kong did not fall as much as US-listed China stocks did on Friday, which is why we are seeing a rebound today in the US. Hong Kong’s most heavily traded stocks by value were Tencent, which fell -1.25% despite continued stock buybacks, Alibaba, which fell -0.95% despite rumors that their grocery platform Freshippo could be spun off soon, Meituan, which fell -0.56%, AIA Group, which fell -1.34%, and Ping An Insurance, which fell -1.42%. Utilities constituted a top performer in Mainland China, where it gained +0.97%, and in Hong Kong, where the sector gained +1.98%, as China’s heatwave may reduce hydroelectrical output thus raising prices.
Berkshire Hathaway reduced their widely successful investment in BYD by another 2.53 million shares, which reduces the holding to 8.98% from 9.21%.
The Hang Seng and Hang Seng Tech indexes fell -0.51% and -0.17%, respectively, on volume that increased +20.07% from Friday, which is 72% of the 1-year average. 292 stocks advanced, while 187 stocks declined. Main Board short turnover increased +15.22% from Friday, which is 67% of the 1-year average, as 15% of turnover was short turnover. The growth factor outperformed the value factor as small caps “outperformed” large caps. The top-performing sectors were healthcare, which gained +2.29%, utilities, which gained +1.99%, and technology, which gained +1.67%. Meanwhile, communication services fell -1.03%, consumer discretionary fell -0.83%, and real estate fell -0.72%. The top-performing subsectors were pharmaceuticals, food, consumer staples, and technical hardware. Meanwhile, software, insurance, and consumer services were the worst. Northbound Stock Connect volumes were light as Mainland investors bought a net $217 million worth of Hong Kong stocks, as Li Auto was a small net sell, and Tencent and Meituan were moderate net buys.
Shanghai, Shenzhen, and the STAR Board fell -1.48%, -1.81%, and -0.97%, respectively, on volume that decreased -4.16% from Wednesday, which is 107% of the 1-year average. 888 stocks advanced while 3,848 declined. The growth factor “outperformed” (i.e. fell less) than the value factor as small caps “outperformed” large caps. Utilities made up the only positive sector, while communication services fell -5.12%, technology fell -2.87%, and financials fell -2.43%. The top-performing subsectors were power industry, oil and gas, and chemical, while computer hardware, internet, and software were among the worst. Northbound Stock Connect volumes were moderate/high as foreign investors bought a net $292 million worth of Mainland stocks as Kweichow Moutai was a moderate net sell, Foxconn was a moderate net buy, and China Tourism Group Duty Free was a small net sell. The Yuan (CNY) closed at 7.23 CNY per USD versus last Wednesday’s 7.17. Meanwhile, the Asia Dollar Index fell versus the US dollar. Treasury bonds rallied, while copper and steel were off.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.23 versus 7.17 Wednesday
- CNY per EUR 7.89 versus 7.82 Wednesday
- Yield on 1-Day Government Bond 1.25% versus 1.29% Wednesday
- Yield on 10-Year Government Bond 2.67% versus 2.67% Wednesday
- Yield on 10-Year China Development Bank Bond 2.81% versus 2.82% Wednesday
- Copper Price -0.74% overnight
- Steel Price -1.64% overnight
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