Asian equity markets had a good day as Hong Kong outperformed while Mainland China and India were off.
The nattering nabobs of negativity are so focused on COVID’s spread in China that they appear to be missing the Hong Kong market’s rebound. The top-performing sectors in both Mainland China and Hong Kong were consumer discretionary, consumer staples, and communication! Have you noticed how stable CNY has been over the past few weeks? The currency’s stability indicates an improvement in risk appetites.
While our Chinese City Mobility Tracker shows declines in traffic and metro usage though several cities are showing stabilization. It was interesting to see a nice jump in volumes in Hong Kong.
The big news overnight was the potential relaxation of inbound China quarantines, to occur in early January. The requirement for foreign arrivals will be reduced to 0+3 (no government facility quarantine, followed by three days of home quarantine).
Also, the CSRC reiterated its policy support for the real estate sector following the PBOC and State Council’s releases. The WTO ruled in favor of China and against the US in a trade dispute dating back to the previous administration. FedEx and Nike’s better-than-expected financial results were also a catalyst as the latter’s China revenue was off only -3% year-over-year.
Hong Kong’s most heavily traded were Tencent, which gained +4.12%, Meituan, which gained +6.89%, and Alibaba, which gained +4.09%, as internet and electric vehicle (EV) stocks had a good day. Hong Kong shorts have been quiet during this rally, which was true today as well though Alibaba’s short turnover accounted for 34% of the total turnover. Mainland China was up all day though sold off into the close to close down though sectors were mixed, and foreign investors were net buyers to the tune of $403 million. Cleantech was off as CATL fell -1.18% despite announcing that their German EV battery plant is up and running.
We speak often about how onshore China and offshore China are two distinct markets. Onshore China, which is 95% owned by investors in China, reflects what the Chinese think about China. Offshore China (represented by US-listed ADRs and Hong Kong stocks) is reflective of what foreign investors think about China. Over the last two years, we have favored onshore over offshore due to all of the negative news from foreign media weighing on sentiment. However, now I might lean more toward offshore China to capture the recovery in sentiment.
The Hang Seng and Hang Seng Tech gained +2.71% and +4.61%, respectively, on volume that was up +46.45% from yesterday which is 82% of the 1-year average. 390 stocks advanced while 94 stocks declined. Main Board short turnover increased +52.95% from yesterday which is 72% of the 1-year average as 15% of turnover was short turnover. Value and growth factors were mixed as small caps edged out large caps. Top sectors were discretionary gaining+5%, communication finishing up +4.42%, and staples closing higher +3.84% while materials was the only down sector -0.53%. Top sub-sectors were software, media, and retailing while materials and food were the only down sub-sectors. Southbound Stock Connect volumes were light as Mainland investors bought $99 million of Hong Kong stocks with Kuaishou a small net buy, Tencent and Meituan were moderate net buys.
Shanghai, Shenzhen, and STAR Board eased -0.46%, -0.72%, and -1.07% on volume +14.65% from yesterday which is 70% of the 1-year average. 826 stocks advanced while 3,850 stocks declined. Value factors “outperformed” growth factors as large caps outpaced small caps. Top sectors were communication +1.62%, staples +1.5%, and discretionary +0.57% while energy -2.13%, materials -1.85%, and tech -1.33%. Top sub-sectors were chemical industry, education, and office supply while chemicals, fertilizer, and chemical fiber were among the worst. Northbound Stock Connect volumes were light as foreign investors bought $403 million of Mainland stocks. CNY was basically flat versus the US dollar at 6.98, Treasury bonds rallied again and copper gained +0.52%.
Major Chinese City Mobility Tracker
Some green shoots as several cities see stabilization/small rises though others are still in free fall.
Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 6.98 versus 6.98 yesterday
- CNY per EUR 7.41 versus 7.41 yesterday
- Yield on 10-Year Government Bond 2.85% versus 2.86% yesterday
- Yield on 10-Year China Development Bank Bond 3.01% versus 3.03% yesterday
- Copper Price +0.53% overnight
Originally Posted December 22, 2022 – Hong Kong Rally Enjoys The Silence
Author Positions as of 12/22/22 are KBA, KALL, KCNY, KFYP, KCNY, KEMQ, BZUN, HSBC, KWEB, KHYB, LI US
Charts Source: KraneShares
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