Key News
Asian equities started the week off to a strong start except for Malaysia, which underperformed the region, and the Philippines, which was closed for National Heroes’ Day.
Chinese financial and tax authorities rolled out a host of investor-friendly policies for Mainland stocks, leading to a very strong open that faded over the course of the trading day. Both Mainland China and Hong Kong equity markets closed in the green. As we’ve noted in the past, the 3,200 level on the Shanghai Composite and the 2,000 level on the Shenzhen Composite are proverbial “lines in the sand” that have been breached, leading to a dial-up in supportive measures.
The announced measures included: Stock Stamp Tax Halved (0.1% to 0.05%), Buybacks and Stock Dividends Encouraged, Limit Pace of IPOs (i.e. less supply), Stock Margin Financing Lowered to 80% from 100%, proposed extending market hours from a 3pm close to a 4pm close, approved nearly 40 new mutual funds and ETFS, and added limitations on corporate stock sales.
The reforms are a positive step, though stronger measures addressing tepid domestic consumption are needed. The wider distribution of consumption vouchers, which have been rolled out in a few cities as a beta test, would be one such potential step. The market’s reaction today is more likely to raise awareness among policy makers that a more forceful response is needed.
After the market close, Mainland financial media also noted the Ministry of Finance and State Administration of Taxation announced lower income citizens will be exempted from personal income tax.
Stockbrokers outperformed as reform beneficiaries though foreign investors sold both Citic, which gained +1.54%, and East Money, which gained +3.86%, in size, along with Mainland stocks. Meanwhile, Mainland volumes exceeded the RMB 1 trillion level for the first time since August 4th, as advancers beat decliners by nearly 4 to 1. A stamp tax cut should be replicated in Hong Kong, which saw volumes pick up from Friday but did not exceed 100% of the 1-year average. Meanwhile, advancing stocks only slightly outpaced declining stocks.
The Mainland bond market sold off as local investors may have sold bonds to buy stocks though foreign investors were unsurprisingly far less optimistic.
Hong Kong-listed internet stocks and the electric vehicle (EV) outperformed as Xpeng gained +10.91% after announcing a partnership with Mainland ride hailing company Didi that will include a new EV.
Real estate was the best performing sector on the mainland, where it gained +3.57%, though just +0.44% in Hong Kong. Distressed developer China Evergrande Group fell -78.79% after trading resumed for the first time since March 2022. Real estate is receiving a vast amount of attention from policymakers, which lowers the probability of a crisis, though an overnight (i.e. silver bullet) solution is not feasible.
US Commerce Secretary Gina Raimondo arrived in China Sunday night in another indication of US China diplomatic green shoots.
The Hang Seng and Hang Seng Tech indexes gained +0.97% and +1.69%, respectively, on volume that increased +24.16% from Friday, which is 88% of the 1-year average. 267 stocks advanced while 206 declined. Main Board short turnover increased +27.82% from Friday, which is 106% of the 1-year average as 20% of turnover was short turnover. The value factor outperformed the growth factor as large caps outperformed small caps. The top-performing sectors were healthcare, which gained +1.8%, energy, which gained +1.7%, and communication services, which gained +1.56%. Meanwhile, materials and utilities were both off -1.47% and -2.08%, respectively. The top-performing subsectors were diversified financials, insurance, and retail. Meanwhile, media, materials, and real estate were among the worst. Southbound Stock Connect volumes were moderate as Mainland investors sold a net -$118 million worth of Hong Kong-listed stocks and ETFs including Tencent, a small net sell, Xpeng, a moderate net buy, Meituan, a small net buy, and CNOOC, another small net buy.
Shanghai, Shenzhen, and the STAR Board gained +1.13%, +0.95%, and +1.13%, respectively, on volume that increased +47.85% from Friday, which is 1.28% of the 1-year average. 3,732 stocks advanced while 1,044 declined. Value factors outperformed growth factors as large caps outperformed small caps. The top-performing sectors were real estate, which gained +3.58%, energy, which gained +2.15%, and communication services, which gained +2.1%. Meanwhile, utilities fell -0.41% and consumer staples fell -0.15%. The top-performing subsectors were real estate, coal, and forest industry. Meanwhile, soft drinks, office supplies, and airports were among the worst. Northbound Stock Connect volumes were high as foreign investors sold a net -$1.13 billion worth of Mainland stocks as East Money was a small/moderate net sell, Citic was a large net sell, Longi was a small net buy, and Kweichow Moutai was a small net sell. CNY and the Asia dollar index both fell versus the US dollar. Treasury bonds were sold 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 2.29 Friday
- CNY per EUR 7.88 versus 7.88 Friday
- Yield on 1-Day Government Bond 1.55% versus 1.50% Friday
- Yield on 10-Year Government Bond 2.58% versus 2.57% Friday
- Yield on 10-Year China Development Bank Bond 2.68% versus 2.67% Friday
- Copper Price +0.16% overnight
- Steel Price -0.57% overnight
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