CLN
Review of the week
- Despite today’s downtrend, Asian stocks were mostly higher for the week, with the exception of mainland China, which reopened after a week-long holiday on Monday.
- U.S. Senate Majority Leader Chuck Schumer and five senators traveled to China this week to meet with President Xi and Foreign Minister Wang. The group issued an amended statement following attacks on Israel over the weekend.
- There are many examples of state-sponsored actors seeking to support stocks and the economy, including an expressed desire to widen this year’s budget deficit, the purchase of shares in major banks by a group investment plan associated with the Chinese sovereign wealth fund and the announcement of a state-backed stabilization fund.
- LVMH and Japanese retail group Fast Retailing, owner of Uniqlo, both announced better-than-expected sales in China this week.
Friday’s key news
Friday 13th lived up to its unfortunate reputation as Asian stock markets fell on the growing likelihood of another Fed hike after the rising U.S. CPI reading dragged down the dollar American on the rise.
Despite today’s bearish trend as traders took short-term profits after several strong days, Asian stocks posted gains for the week, with the exception of mainland China. Aside from the macroeconomic woes, JD.com’s meeting with sell-side analysts before their earnings release turned out to be a disaster. After the conference call, analysts reduced their price targets for the stock and lowered their third-quarter revenue target to around 1% year-over-year (year-over-year). JD’s US listing fell -8.27% yesterday during US trading hours, although its Hong Kong share class (9618 HK) fell -11.47% then that a rumor that the CEO had been arrested added to the decline. Obviously, the rumor is not true since the company has denied it. JD’s US listing hit a three-year low, while the Hong Kong share class was Hong Kong’s most traded stock at HKD4.28 billion, which is light, although its volume was 40 million shares traded compared to 8.7 million yesterday. JD.com’s P/E is now 9, which is why I have advocated for companies to pay a dividend. If you’re treated like a value stock, do what value stocks do, which is pay a dividend because they have cash on their books.
Internet names listed in Hong Kong took a sympathetic hit, with Tencent falling -3.1%, Meituan -3.21% and Alibaba -3.79%. It was a total disaster overnight in Hong Kong, with only 46 stocks in the Hang Seng Composite rising, while 449 declined and only 11 of the 100 most traded stocks rose. Mainland investors benefited from the decline as Hong Kong-listed ETFs saw net buying. Mainland China was behind, but not by as much. Growth stocks favored by foreign and domestic investors took a hit, with foreign investors selling a net -$880 million worth of mainland stocks via Northbound Stock Connect. Meanwhile, Huawei’s healthcare and ecosystem were rare bright spots.
Bloomberg News reported that a “state-backed stabilization fund” would be created to buy stocks following yesterday’s announcement that the sovereign wealth fund has purchased four Chinese banks and will strengthen their positions in the coming months .
Meanwhile, CCTV reported that Premier Li held a symposium with “economic experts and entrepreneurs.” As the Shanghai Composite Index falls below 3,100 and the Shenzhen Composite Index sits at 1,900, we could hear of increased policy support over the weekend.
September’s economic and trade data was arguably mixed/good, but it obviously wasn’t a factor in today’s market action. September’s CPI and PPI were 0% and -2.5% YoY (YoY) respectively, indicating weak demand, although it’s better than high inflation I suppose . Exports and imports declined year-over-year but improved month-over-month. Overall financing and new loans exceeded expectations and improved month-on-month, while new loans amounted to RMB 2.31 trillion, missing expectations by 2.5 trillion RMB, although an improvement from August’s 1.36 trillion RMB. The recovery in lending and financing is positive because it indicates an increase in demand for credit.
Fed Chairman Powell met yesterday with People’s Bank of China (PBOC) Governor Pan during the IMF and World Bank meetings in Morocco, in another diplomatic green session between the United States and China. Treasury Secretary Yellen is also expected to meet with Pan today, according to Bloomberg.
The Hang Seng and Hang Seng Tech indices fell -3.1% and -3.79% respectively, on volume down -11.47% from yesterday, or 74% of the one-year average. 46 stocks rose while 449 fell. The Main Board’s short sales turnover fell -12.32% from yesterday, or 81% of the year-over-year average, with 18% of turnover being short sales (recall Please note that Hong Kong short turnover includes the volume of ETF short sales which is determined by market makers’ ETF coverage. The value factor “outperformed” (i.e. declined less) than the growth factor, while large caps did not decline as much as small caps. All sectors were negative: Consumer Staples fell -3.89%, Consumer Discretionary -3.81%, and Communication Services -3.43%. Food was the only positive subsector, while retail, beverages, tobacco and software were among the worst. Southbound Stock Connect volumes were light as mainland investors purchased a net $513 million of Hong Kong-listed stocks and ETFs, including the Hong Kong Tracker ETF, which saw significant net buying , and Meituan, which saw moderate net buying. Meanwhile, ICBC and Kuaishou made up small net sales.
Shanghai, Shenzhen and the STAR Board fell -0.64%, -0.79% and -0.92% respectively, on volume down -2.76% from yesterday, or 92% of the average over one year. 1,193 stocks rose while 3,669 fell. The value factor “outperformed” (i.e. declined less than) the growth factor, with large caps falling less than small caps. Energy was the only positive sector, with consumer staples falling -1.93%, communication services -1.88% and industrial products -1.66%. The best performing subsectors were pharmaceuticals, electronic components and coal. Meanwhile, building materials, restaurants and business services were among the worst. Northbound Stock Connect volumes were moderate as foreign investors sold a net -$881 million worth of mainland stocks, with Zongji Innolight being a moderate net buy, Tuopu Group and Changan Auto being small net buys. Meanwhile, Kweichow Moutai accounted for significant net sales and Wuliangye and China Merchants Bank accounted for moderate net sales. The CNY and Asia Dollar Index fell against the US dollar. Treasuries rallied, copper fell and steel made a small gain.
Last night’s performance
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Last night’s exchange rates, prices and yields
- CNY per USD 7.31 compared to 7.31 yesterday
- CNY per EUR 7.68 against 7.69 yesterday
- Yield on 1-day government bonds 1.60% compared to 1.60% yesterday
- Yield on 10-year government bonds 2.67% compared to 2.69% yesterday
- Yield on 10-year Chinese Development Bank bonds 2.74% compared to 2.76% yesterday
- Copper price -0.40% overnight
- Steel prices +0.08% overnight