Key News
Asian equities were largely lower overnight, and Taiwan was closed as Typhoon Khanun came ashore.
The Hang Seng Tech index gained +0.4% following US-listed China stocks’ decline of -5% yesterday on no real news, except for a stronger US dollar, ironically, on Fitch’s downgrade and Asian growth stocks and sectors being hit with profit taking after a strong July run.
The space appeared slightly overbought, which provides investors on the sideline to come in. We should have a nice rebound in US-listed China ADRs as Hong Kong didn’t nearly as much as US ADRs, with Hong Kong’s most heavily traded were Tencent, which fell -0.35%, Alibaba, which fell -2.1%, AIA, which pulled a James Bond to gain +0.07%, HSBC, which fell -2.02%, and Meituan, which fell -0.36%.
The July Caixin China Services PMI increased to 54.1 versus expectations of 52.4 and June’s 53.9. Fake data, right? The Caixin survey is conducted by IHS Markit, which was bought by S&P Global. The increase was driven by an increase in restaurant activity, as noted in Q2 financial results from Starbucks, Yum China, and hot pot chain Haidilao.
Mainland China posted small gains driven by an afternoon rally. Brokers drove Mainland financials higher and were very strong (again) as investors consider the Politburo statement on raising investor expectations highly unusual. Mainland real estate was also a strong performer, as policy support is apt to include a repricing of current mortgages. This is in addition to recent language on support for local government debt, stabilizing the renminbi, and monetary support for the economy.
The China clean tech ecosystem had a strong day driven by strong results from Longi Green Energy Technology (601012 CH) +6.05% after announcing that in the first half of 2023, net income grew +41.6% to RMB 9.18 billion. Hong Kong EV makers XPeng +3.97%, Li Auto +3.92%, and BYD +0.3% gained on strong July sales numbers. BYD sold 262,161 EVs in July!!! Wow!
A fair amount of press on a well-respected strategist downgrading China to equal weight from overweight. Interesting that Hong Kong’s weakness was blamed on the downgrade though the strategist upgraded India, which was down! Ultimately the strategist had been overweight China since early December, which means they caught the initial upswing in Chinese equities but caught the pullback as well.
In a meeting with a Chinese economist yesterday, he noted that local investors have been conservatively positioned though the Politburo release is viewed as a very significant event and market catalyst. It is very rare for the government to explicitly include the stock market in their readout. China’s Foreign Ministry acknowledged the invitation from the US for Foreign Minister Wang Yi to visit Washington DC though a date hasn’t been released. Diplomatic green shoots! Evergrande Property Service (6666 HK), the property management arm of distressed developer Evergrande, fell -47.39% after reopening for trading in Hong Kong after being suspended since March 2022.
The Hang Seng and Hang Seng Tech split -0.49% and +0.4% on volume -10.76% from yesterday, which is 89% of the 1-year average. 238 stocks advanced, while 226 declined. Main Board short turnover declined -8.85% from yesterday, which is 87% of the 1-year average of 16%. The growth factor outperformed the value factor, while small caps outpaced large caps. The top sectors were healthcare +1.01%, tech +0.71%, and real estate +0.62%, while energy -1.51%, materials -0.99%, and discretionary -0.9%. The top sub-sectors were pharma, auto, and diversified finance, while energy, retailing, and media were the worst. Southbound Stock Connect volumes were moderate/light as Mainland investors sold -$267 million of Hong Kong stocks and ETFs, with Tencent a moderate net buy, XPeng a small net buy, and China Construction Bank a very small net sell.
Shanghai, Shenzhen, and STAR Board gained +0.58%, +0.27%, and +0.2% on volume down -0.44% from yesterday, which is 93% of the 1-year average. 1,761 stocks advanced, while 2,861 declined. The value factor outperformed the growth factor, while small caps outpaced large caps. The top sectors were financials +2.34%, real estate +1.86%, and healthcare +1.53%, while discretionary -0.08% and energy -0.07%. The top sub-sectors were the securities industry, insurance, and pharma, while auto parts, precious metals, and communication equipment were the worst. Northbound Stock Connect volumes were moderate as foreign investors bought $75 million of mainland stocks, with Longi Green Energy a large net buy, Kweichow Moutai a small net sell, and Citic Securities a small net buy. CNY and the Asia dollar index made very small gains versus the US dollar. Treasury bonds rallied while copper and steel were smoked lower.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.17 versus 7.17 yesterday
- CNY per EUR 7.84 versus 7.87 yesterday
- Yield on 10-Year Government Bond 2.64% versus 2.65% yesterday
- Yield on 10-Year China Development Bank Bond 2.75% versus 2.75% yesterday
- Copper Price -1.15% overnight
- Steel Price -1.96% overnight
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