Week in Review
- Asian equities had a mostly positive week other than last night on multiple earnings releases including from Nvidia, which lifted semiconductor stocks.
- NetEase, Kuaishou, and Baidu all reported Q2 earnings this week with mixed but mostly positive results as advertising and game revenues come back in force.
- US Commerce Secretary Gina Raimondo prepared for her trip to China, which starts this weekend, by meeting with China’s Ambassador to the US, who urged cooperation and a constructive US-China relationship.
- Foreign outflows from Mainland stocks via Northbound Stock Connect made a U-turn on Thursday after two weeks of straight net selling.
Friday’s Key News
Asian equities ended the week with a thud except for Singapore and Thailand, which both managed small gains.
Technology, growth stocks, and growth sectors were hit the hardest on US rate hike fears as the US dollar strengthened overnight. Meanwhile, Hong Kong’s fall today erased the week’s gain, unfortunately.
Meituan’s financial results beat expectations but were overshadowed by a cautious Q3 outlook and comments during the Q&A, which sent the stock lower by -5.57% and weighed on Hong Kong-listed internet names.
Volumes have been light, which has added to the volatility and the market’s decline. Meanwhile, negative media attention on China’s economy has only exacerbated volatility, to the delight of Hong Kong shorts, who have pressed their bets as Main Board short turnover reached 20% or more for the fifth time this month.
I recently returned from a business trip in Asia. My interactions with investors on this trip, along with past international and domestic trips, made me realize that they are universally and severely overweight US stocks and underweight non-US equities, including China. With no buyers, shorts can push the stocks lower. Why are there no buyers? Stimulus, market reforms, and rate cuts have been implemented incrementally, but we’ve not seen the preverbal “bazooka” and investors continue to ask ”where’s the beef?”.
Why have we not seen such strong stimulus? China’s economy isn’t doing as badly as the headlines suggest. Investors and Chinese consumers would like to see widespread release of spending vouchers to jump start domestic consumption. Yes, real estate is problematic, but will it cause China’s “Lehman moment”? That is unlikely given the attention the sector is receiving from regulators though a silver bullet solution is not going to occur overnight. We have long mentioned real estate issues will continue to flare as distressed players run into issues.
Ironically, real estate was the best performing sector overnight in Hong Kong and Mainland China as reforms announced overnight included the elimination of second home purchase restrictions for homeowners with existing mortgages.
Mainland water industry stocks rose as Japan releases treated water from the Fukushima nuclear plant, prompting a Chinese ban on Japanese fish.
Mainland stocks have slid through support levels of 3,200 on the Shanghai and 2,000 on the Shenzhen this month, despite market reforms and support. Contrarians should note The Economist’s negative China cover, which has a horrific track record.
US Commerce Secretary Gina Raimondo will begin her trip to China this weekend as US-China diplomatic green shoots continue.
The Hang Seng and Hang Seng Tech indexes fell -1.4% and -2.38%, respectively, on volume that decreased -19.85% from yesterday, which is 71% of the 1-year average. 185 stocks advanced while 295 stocks declined. Main Board short selling declined -7.01% from yesterday, which is 83% of the 1-year average as 20% of turnover was short turnover. The value factor “outperformed” i.e. fell less than, the growth factor while small caps “outperformed” large caps. The top-performing sectors were real estate, which gained +0.99%, financials, which gained +0.51%, and materials, which gained +0.21%. Meanwhile, utilities fell -2.74%, consumer discretionary fell -2.48%, and communication services fell -2.33%. The top-performing subsectors were household products, diversified financials, and banks. Meanwhile, media, retail, and food (consumer staples) were among the worst. Southbound Stock Connect volumes were light as mainland investors sold a net -$287 million worth of Hong Kong-listed ETFs and stocks as Meituan was a large net buy, energy giant CNOOC was a small/moderate net buy, and Tencent and Kuaishou were both small net sells.
Shanghai, Shenzhen, and the STAR Board all fell by -0.59%, -1.49%, and -1.70%, respectively, on volume that decreased -2.55% from yesterday, which is 87% of the 1-year average. 995 stocks advanced while 3,706 stocks declined. The value factor outperformed the growth factor as large caps “outperformed” i.e. fell less than small caps. The top-performing sectors were real estate, which gained +1.77%, utilities, which gained +0.95%, and financials, which gained +0.56%. Meanwhile, technology fell -2.86%, communication services fell -2.59%, and consumer discretionary fell -1.31%. The top-performing subsectors were the water industry, real estate, and insurance. Meanwhile, computer hardware, software, and internet were among the worst. Northbound Stock Connect volumes were light as foreign investors sold a net -$329 million worth of Mainland stocks as Kweichow Moutai, Wuxi Apptec, and Citic were all small net sells.
We lost one of our family dogs as Murphy succumbed to a sudden illness. He was a good dog that will be missed despite his incredible track record of barking during my video calls.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.28 versus 7.28 yesterday
- CNY per EUR 7.88 versus 7.87 yesterday
- Yield on 1-Day Government Bond 1.50% versus 1.45% yesterday
- Yield on 10-Year Government Bond 2.57% versus 2.55% yesterday
- Yield on 10-Year China Development Bank Bond 2.67% versus 2.66% yesterday
- Copper Price -0.38% overnight
- Steel Price -0.56% overnight
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