Week in Review
- Asian equities mostly followed Wall Street lower this week as Taiwan underperformed on semiconductor weakness and a closure for most of the week due to a typhoon, though India managed a slight gain.
- The PBOC, China’s central bank, performed a slew of interest rate cuts across the curve this week following the Third Plenum policy meetings.
- Lackluster earnings reports from Tesla and Google weighed on China internet, technology, and electric vehicle (EV) ecosystem names this week as investors demand more evidence of AI’s impact on revenue.
- Meanwhile, conflicting narratives around the US election also impacted offshore markets, though we continue to reiterate that Trump’s tariff claims would be part of a negotiating strategy with China.
Key News
Asian equities ended a rough week largely higher, except for Taiwan, which reopened to a -3% drop after being closed for two days for Typhoon Gaemi.
Yesterday, the National Development and Reform Commission’s (NDRC) announced that half of the RMB 300 billion worth of long-dated government bonds will be used to support a 15% subsidy for “individual consumers to purchase 8 types of home appliances including refrigerators, washing machines, TVs, AC, computers, water heaters, household stoves and range hoods”. Mainland-listed home appliance companies jumped higher, including Gree Electric Appliances, which gained +6.53%, Midea Group, which gained +5.79%, and Haier Smart Home, which gained +8.3%. These three companies were also net purchased via Northbound Stock Connect, which indicates that I am not the only one who noticed. The biggest E-Commerce player in home appliances is JD.com, which jumped +3.02% in Hong Kong versus yesterday’s ADR move of +2.21%.
Meanwhile, the EV and new energy vehicle (NEV) subsidies will be increased to RMB 20,000 from RMB 10,000 and gas/internal combustion engine car subsidies will be increased from RMB 7,000 to RMB 15,000. Electric vehicle and autos rose in Hong Kong, as BYD gained +0.68%, Li Auto gained +1.91%, Great Wall Motor (GWM) gained +1.63%, Geely Auto gained +0.64%, Xpeng gained +1.74%, and NIO gained +0.15%. In Mainland China, the world’s largest battery maker CATL gained +0.86% and EV giant BYD gained +1.82%.
CATL announced its first-half net income increased +11% to RMB 22.9 billion and second quarter net income increased +13.4% to RMB 12.35 billion. However, second quarter revenue fell -13.2% to RMB 87 billion. The other RMB 150 billion will be used for industrial upgrades including elevators and clean technology.
It was a busy week for the NDRC. In addition to the subsidies, they also announced support for infrastructure real estate investment trust (REIT) issuance. After the close, Shanghai’s government announced the formation of a RMB 100 billion fund to support technology companies, including semiconductors, AI, robots, and robo-taxis.
The first fiscal stimulus focused specifically on domestic consumption scone the pandemic has received virtually no coverage in the Western media.
Against the backdrop of low investor positioning and next week’s Politburo meeting, which will be focused on economic policies, I believe an interesting opportunity is occurring. Mainland investors appeared to agree with me, as they bought a very large $1.12 billion worth of Hong Kong-listed stocks and ETFs today.
Hong Kong’s most heavily traded stocks were Tencent, which gained +0.91%, China Mobile, which fell -2.68%, Meituan, which gained +0.475, China Construction Bank, which fell -0.55%, and AIA, which gained +1.67%. Mainland investors noticed the growth support sending growth sectors/stocks higher.
There was another interesting spike in volumes in the National Team-favored ETFs in the afternoon, when the market faltered. Clearly, the gas pedal was pushed, though nothing like yesterday. I’ll put another chart up on Twitter (@ahern_brendan).
India and China relations are warming somewhat. The Associated Press noted that “India and China agree to work urgently to achieve the withdrawal of troops on their disputed border”. Meanwhile, China’s clean technology ecosystem jumped yesterday as India removed restrictions on Chinese solar, wind, and electric vehicles.
A Mainland media source noted that second quarter smart phone sales in China increased +8.9% year-over-year (YoY), led by Vivo, Huawei, and Oppo. However, Apple’s sales fell -3.1% YoY as the company fell out of the top 5 smartphone sellers in China. Recent iPhone price reductions are expected to spur demand in the second half of the year. For the first half of the year, smart phone sales were 140 million, which represents growth of +7.7% YoY.
The Hang Seng and Hang Seng Tech indexes gained +0.10% and +0.66%, respectively, on volume that decreased -1.01% from yesterday, which is 102% of the 1-year average. 307 stocks advanced while 163 stocks declined. Main Board short sale turnover increased +31.60% from yesterday, which is 129% of the 1-year average, as 22% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Growth and small caps outperformed value and large caps. The top-performing sectors were Industrials, which gained +2.37%, Materials, which gained +1.60%, and Health Care, which gained +0.85%. Meanwhile, Utilities fell -0.99%, Real Estate fell -0.63%, and Financials fell -0.25%. The top-performing subsectors were capital goods, basic materials, and consumer durables. Meanwhile, telecom, food & beverage, and banks were among the worst-performing. Southbound Stock Connect volumes were moderate as Mainland investors bought a net $1.12 billion worth of Hong Kong-listed stocks and ETFs, including the Hong Kong Tracker ETF, which was a very large buy, the Hang Seng China Enterprise ETF, which was a large/moderate net buy, the Hang Seng Tech ETF, which was a large/moderate net buy, and Tencent, which was a moderate net buy. Meanwhile, China Mobile was a large net sell.
Shanghai, Shenzhen, and the STAR Board gained +0.14%, +1.43%, and +0.84%, respectively, on volume that increased +3.04% from yesterday, which is 74% of the 1-year average. 4,168 stocks advanced while 788 stocks declined. Growth and small caps outperformed value and large caps. The top-performing sectors were Consumer Discretionary, which gained +2.17%, Materials, which gained +1.23%, and Technology, which gained +0.66%. Meanwhile, Utilities fell -1.85%, Financials fell -0.94%, and Consumer Staples fell -0.66%. The top-performing subsectors were household appliances, motorcycles, and aerospace & military. Meanwhile, the telecom, banking, and power industries were among the worst-performing. Northbound Stock Connect volumes were moderate as foreign investors net sold Mainland stocks, including Kweichow Moutai, Sevenstar, and CATL. However, Haier, Gree, and Midea were net buys. The treasury curve flattened. CNY and the Asia Dollar Index fell versus the US dollar. Copper and steel gained.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.25 versus 7.22 yesterday
- CNY per EUR 7.87 versus 7.84 yesterday
- Yield on 10-Year Government Bond 2.19% versus 2.22% yesterday
- Yield on 10-Year China Development Bank Bond 1.94% versus 1.94% yesterday
- Copper Price: 0.52%
- Steel Price: 0.81%
Read the full article here
