Key News
Asian equities had another strong day as Mainland China and Hong Kong outperformed the region.
Following the weekend announcements on stock market reforms covered yesterday (Mainland stamp tax cut, nearly 40 mutual funds /ETFs approved to launch, i.e., more demand, restrictions on corporate parent stock sales, i.e., less supply, limit IPOs, i.e., less supply, encourage buybacks, i.e., more demand), there were further incremental policies announced including several banks cutting mortgage rates and deposit rates, PBOC adding liquidity to the financial system, US Commerce Secretary Raimondo’s positive meeting with China Minister of Commerce Wang Wentao, and several company catalysts such as BYD’s very strong financial results after the Hong Kong close yesterday.
BYD results occurred after I wrote China Last Night, which is why I recommend following me on Twitter (@ahern_brendan) for timely updates. Mainland Chinese media is reporting that Secretary Raimondo met with Premier Li in another development. A working group of officials will be formed with two meetings a year of junior officials while the Commerce heads agree to meet annually. Both Mainland China and Hong Kong had 10 advancing stocks for every 1 declining stock, as the Mainland market’s volume exceeded RMB 1 trillion for the second day in a row. Hong Kong outperformed Mainland China, though volumes haven’t been as high as we would like to see while short volume was 20% of the Main Board’s total turnover for the 3rd day in a row and well above the 12% average short turnover from 2011 to 2022.
While domestic investors bought Hong Kong stocks via Southbound Stock Connect, foreign investors were net sellers of Mainland stocks again, though a small amount. This shows continued foreign skepticism among investors, which I experienced on my recent Asia trip, where almost EVERY institutional investor I met with was overweight US stocks and underweight China. I have experienced this in many domestic US trips and other overseas trips. The most crowded trade is US stocks driven by strong performance over the last decade supported by the strong US dollar. Growth sectors outperformed in both markets as investors want the good stuff, i.e., growth names versus value names. Foreign investors were net buyers of growth stocks listed on the Shenzhen Stock Exchange via Northbound Stock Connect, though net selling of value stocks on the Shanghai caused a net sell.
BYD’s results lifted Hong Kong electric vehicle (EV) stocks and Mainland listed CATL +3.47%. This morning, Nio’s Q2 results missed expectations, though the strong Q3 guidance was positive. E-commerce company Pinduoduo (PDD US) reported strong Q2 financial results pre-US market open beating on the big three (revenues +66% year over year (YoY) to RMB 52.28 billion ($7.209 billion) versus expectations of RMB 43 billion, adjusted net income +42% YoY to RMB 15.269 billion versus analyst expectations of RMB 10.87 billion and adjusted EPS of RMB 10.47 versus RMB 7.54 in Q2 2022 and analyst expectations of RMB 7.12). On the earnings conference call, management noted “consumption trend improvement” and an “increase in consumer demand on the Pinduoduo platform”. A positive read from PDD!
Yesterday’s Mainland market structure reforms included cutting the stamp tax (transaction fee) from 0.1% to 0.05%. The move should bring more investors into the stock market as it becomes cheaper to trade. An obvious beneficiary is local stock brokers and investment banks, which are part of the financial sector. Due to China’s large savings, Chinese banks are amongst the biggest in the world by deposits. Therefore, the financial sector is a large sector in China relative to developed market indices. Therefore, the stamp tax reduction has an implied effect on raising Mainland market indices.
The Hang Seng and Hang Seng Tech indexes gained +1.95% and +2.59%, respectively, on volume that increased +0.36% from yesterday, which is 88% of the 1-year track record. 465 stocks advanced, while 41 stocks declined. Main Board short turnover declined -1.1% from yesterday, which is 105% of the 1-year average, as 20% of turnover was short turnover. The growth factor outpaced the value factor as small caps outperformed large caps. All sectors were positive, as real estate gained +5.4%, healthcare gained +2.71%, and utilities gained +2.34%. All sub-sectors were positive. Southbound Stock Connect volumes were moderate as Mainland investors bought a net $370 million of Hong Kong stocks and ETFs, with CNOOC, XPeng, and Kuaishou as the largest net buys, while China Mobile, Tencent, and Country Garden were the largest net sells.
Shanghai, Shenzhen, and the STAR Board gained +1.2%, +2.69%, and +4.12%, respectively, on volume that declined -8.27% from yesterday, which is 118% of the 1-year average. 4,371 stocks advanced, while 424 stocks declined. The growth factor outperformed the value factor as small caps outpaced large caps. The top-performing sectors were technology, which gained +3.36%, consumer discretionary, which gained +2.76%, and communication services, which gained +2.35%. Meanwhile, financials fell -0.87%, energy fell -0.59%, and utilities fell -0.38%. The top-performing subsectors were industrial machinery, auto parts, and software. Meanwhile, banking, securities brokers, and oil & gas were among the worst. Northbound Stock Connect volumes were high as foreign investors sold a net -$93 million worth of Mainland stocks as BYD was a large net buy, CATL was a moderate net buy, and Wuxi AppTec was a small net buy. Top sells were PAB, Kweichow Moutai, and Mindray, which were all moderate net sells. CNY and the Asia Dollar Index were off slightly versus the US dollar. The treasury curve flattened while copper gained and steel fell.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.29 versus 7.29 yesterday
- CNY per EUR 7.88 versus 7.88 yesterday
- Yield on 10-Year Government Bond 2.57% versus 2.58% yesterday
- Yield on 10-Year China Development Bank Bond 2.69% versus 2.68% yesterday
- Copper Price +0.22% overnight
- Steel Price -0.41% overnight
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