Key News
Asian equities followed Wall Street lower overnight except for Taiwan, which pulled a James Bond +0.07% before Taiwan Semiconductor’s post-close earnings announcement that beat expectations.
The US 10-year Treasury Yield is approaching 5%, which is sending the US dollar higher as China’s Renminbi and the Asia Dollar Index both fell versus the greenback. US political dysfunction and Middle East tension continue to weigh on investors’ risk appetite.
Country Garden did not make its $15 million offshore bond coupon payment, which technically puts the company in default, though I suspect it will eventually get paid.
Tesla’s post-US close earnings miss weighed on the Chinese electric vehicle (EV) ecosystem despite BYD’s solid preliminary results announced yesterday with Hong Kong shares of BYD falling -3.65%, XPeng falling -8.93%, Li Auto falling -4.06%, Nio falling -7.99%, and Mainland China’s CATL felling -1.93% to hit a 52-week low. CATL’s Q3 results were light versus expectations. However, it is important to remember that, in Mainland China, semi-annual results are far more important than quarterly, with only four of forty-four analysts providing quarterly expectations.
Foreign investors sold a healthy -$1.6 billion worth of Mainland stocks via Northbound Stock Connect, as the selling was concentrated in popular growth (non-SOE) stocks including CATL, liquor giant Kweichow Moutai, which fell -5.67%, BYD’s Mainland listing, which fell -3.40%, Ping An Insurance, which fell -2.83%, and liquor company Wuliangye Yibin, which fell -3.34%. The Shanghai and Shenzhen Composites are well below my “line in the sand” levels of 3,100 and 2,900, closing today at 3,005 and 1,828.
Hong Kong had a challenging session except for cell phone camera maker Sunny Optical, which gained +8.74%, as Hong Kong growth stocks were off, though everything was as well. JD’s poor outlook continues to weigh on the space.
Chatter that the Chinese government is taking a stake in Tencent was rumored yesterday, though I had never heard of the news source. The real culprit is chatter that early investor Prosus (Naspers) may sell Tencent shares.
Mainland investors were net buyers of Hong Kong stocks and ETFs via Southbound Stock Connect. Today’s market action was despite the good September/Q3 economic data showing China’s economy has likely bottomed and is slowly rebounding. Many economists raised their GDP estimates for Q4 and 2023 in response.
We also had real estate data showing that Tier 1 cities like Beijing and Shanghai had property rises in September, proving once again that location is everything in real estate. Today’s market action has raised the probability of the policy bazooka being unholstered.
The Hang Seng and Hang Seng Tech indexes fell -2.46% and -1.90%, respectively, on volume that increased +2.6% from yesterday, which is 80% of the 1-year average. 72 stocks advanced, while 425 declined. Main Board short turnover increased +7.69% from yesterday, which is 86% of the 1-year average as 18% of turnover was short turnover (remember Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Large caps and growth factors underperformed small caps and value factors. Tech was the only positive sector +2.2%, while discretionary -3.19%, financials -3.01%, and communication -2.85%. Technical hardware and food were the only positive sub-sectors, as insurance, auto, and retailing were the worst. Southbound Stock Connect volumes were light/moderate as Mainland investors bought $229mm of Hong Kong stocks and ETFs, with the Tracker ETF a moderate/large net buy and Meituan a small net buy while Tencent was a small net sell.
Shanghai, Shenzhen, and the STAR Board fell -1.74%, -1.51%, and +0.04%, respectively, on volume that increased +5.9% from yesterday, which is 93% of the 1-year average. 1,573 stocks advanced, while 3,193 declined. The growth factor outperformed the value factor as small caps “outperformed”/fell less. All sectors were negative, with staples -4.05%, discretionary -2.95%, and energy -2.15%. Computer hardware and semis were the only positive sub-sectors, while liquor, auto, and agriculture were the worst. Northbound Stock Connect volumes were moderate as foreign investors sold a very healthy -$1.599B of Mainland stocks, with Changan Auto a moderate net buy, Midea and Wuxi AppTec small net buys while Kweichow Moutai a large net sell, liquor peer Wuliangye and insurance giant Ping An moderate net sells. CNY and the Asia dollar index fell versus the US dollar. Treasury bonds and steel were sold with copper flat.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.31 versus 7.31 yesterday
- CNY per EUR 7.71 versus 7.72 yesterday
- Yield on 10-Year Government Bond 2.71% versus 2.70% yesterday
- Yield on 10-Year China Development Bank Bond 2.78% versus 2.77% yesterday
- Steel Price -0.28% overnight
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