Asian equities had a strong day, with China and Hong Kong outperforming following President Biden’s positive meeting with Xi in Bali, as well as continued support for the real estate sector.
Hong Kong internet stocks soared, led by Hong Kong’s most traded Tencent by value +10.51%, Alibaba HK +11.05% and Meituan +6.33%. After the Party Congress, the Chinese government is back in business, as several important issues are being addressed now that government jobs have been secured for the next five years: political relations between the United States and China, zero COVID policy and real estate. The resumption of communication between the United States and China is a very important step with a follow-up meeting of Secretary of State Blinken whose visit to China is in preparation. Discussions on Taiwan, Ukraine and Russia are also important. COVID is everywhere in China with 1,621 new COVID cases and 16,151 asymptomatic cases reported. Despite this, we are not seeing significant blockages as dynamic zero-COVID eases restrictive policies.
Tracking the mobility of major cities
We are also seeing strong support for struggling property developers. These issues have weighed heavily on foreign investor sentiment and domestic consumption in China. One remaining issue, the delisting of Foreign Corporate Liability Act (HFCAA)/ADR, could be positively resolved based on the Biden Xi meeting.
We had a very good day in Hong Kong with all sectors positive and short turnover falling to 15% of total turnover. Obviously, a positive HFCAA resolution would be another big catalyst, although we also have third quarter results with Tencent reporting tomorrow after the Hong Kong close, as well as Alibaba and NetEase.
Mainland China had a good day, with semiconductor stocks being the top sub-sector in the U.S.-China policy talks. Mega/large-cap growth stocks that are favorites of domestic and overseas active managers led the market higher with China’s top-traded liquor giant Kweichow Moutai +3.59%, broker East Money +5, 36% and electric battery giant CATL +2.32%. Overseas investors today bought $1.157 billion of Mainland stocks following $2.349 billion in net purchases yesterday and $2.066 billion in net purchases on Friday. Treasuries sold off on equity enthusiasm while the CNY gained +0.47% against the US Dollar to close at 7.04. After Hong Kong/before the US market, Tencent Music Entertainment (TME US, 1698 HK) beat revenue and adjusted net profit estimates, although adjusted EPS fell slightly.
The Hang Seng and Hang Seng Tech gained +4.11% and +7.3% respectively on volume +0.09% from yesterday, or 166% of the 1-year average. 447 stocks rose while 62 fell. Lead Consulting revenue was up +7.14% from yesterday, or 146% of the 1-year average, with 15% of revenue being short revenue. Value and growth factors were mixed, with small caps outperforming large caps. All sectors were positive, with Communications finishing up +9.96%, Discretionary up +7.76% and Technology up +5.2%. The main sub-sectors were software, retail and semi-finished. Southbound Stock Connect volumes were 2x above average as mainland investors bought +$32m worth of Hong Kong stocks today, Tencent a small net buy after yesterday’s big net buy, Kuaishou a small net sell and Meituan a moderate net sell.
Shanghai, Shenzhen and STAR Board gained +1.64%, +2.05% and +2.85% respectively on volume -1.16% from yesterday, or 109% of the 1-year average. 4,045 stocks rose while 578 stocks fell. Growth factors outperformed value factors while small caps outperformed large caps. All sectors were positive, led by Technology closing up +3.71%, Materials up +2.26% and Utilities up +2.08%. The main subsectors were semi-finished products, electronic components and office supplies, while precious metals and transportation were the only negative subsectors. Northbound Stock Connect volumes were moderate/high as overseas investors bought $1.157 billion worth of mainland stocks. Chinese treasury bonds sold off, the CNY gained +0.47% against the US dollar to close at 7.04, while copper ended down -0.9%.
Last night’s exchange rates, prices and yields
- CNY for 7.04 USD against 7.07 yesterday
- CNY for 7.33 EUR against 7.29 yesterday
- 10-year government bond yield 2.81% vs. 2.84% yesterday
- China Development Bank 10-year bond yield 2.96% vs. 2.97% yesterday
- Copper price -0.90% overnight
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