CLN
Review of the week
- China’s better-than-expected economic performance this week failed to boost markets, with most Asian stock markets closing lower this week.
- The Biden administration has added the types of semiconductors that U.S. companies and those using U.S.-developed technology are unable to export to China, although most global chipmakers have indicated that They expected a slight impact from the expanded list and that they continue to target China for future growth. .
- Buybacks continued to increase this week, with 10 public companies announcing new buybacks or an increase in their buyback programs, while internet giant Tencent repurchased nearly $4 billion of its own shares so far. now this year.
- Electric vehicle giant BYD expects its third-quarter net profit to nearly double.
Key news
Asian stocks ended a slow week lower as 10-year US Treasury yields temporarily rose above 5% during Asian trading hours following Powell’s press conference yesterday.
The markets are not climbing the wall of worry which seems to be increasing as investors remain in risk aversion mode. Shanghai and Shenzhen closed further below my “lines in the sand” of 3,100 and 1,900, respectively. Markets closed at 2,983 and 1,810. This week’s price action brings Shenzhen closer to the March 2022 invasion of Ukraine low.
The prime lending rate (LPR) was not reduced, as expected, even though the market could have benefited from the political signal. However, it is important to note that banks are not required to follow the LPR and many are already lowering mortgage and refinancing rates.
An obvious problem for the mainland market has been foreign investors selling through Northbound Stock Connect, which now represents a relatively small net sale worth $225 million. For the week, we saw net sales worth $4 billion, which is a dip in the pond given the size of the market. The problem is that buyers are on the sidelines and the stocks being sold are widely held and represent large percentages of the indexes. Efforts by regulators to lift the mainland market by encouraging companies to pay dividends, increase share buybacks and limit IPOs, which constrain supply, are being thwarted. The People’s Bank of China (PBOC) injected massive amounts of liquidity into the financial system, but to no avail.
Evergrande said its bondholders had agreed to a restructuring. Meanwhile, Country Garden bondholders reportedly met to discuss a restructuring after the company failed to pay a $15 million coupon. Remember, Sunac bondholders have already agreed to a restructuring. What about the Lehman moment in China?
One of the few bright spots today is property values in Hong Kong and mainland China. In addition to yesterday’s report that Tier 1 cities are seeing modest price increases in September, Shanghai will adjust the definition of first-time home buyer in another effort to stabilize property prices.
Hong Kong was lower as mainland investors bought the dip via Southbound Stock Connect with a large net purchase in the Hong Kong Tracker ETF. Hong Kong’s most traded stocks by value were Tencent, down -0.76%, Meituan, down -2.36%, and Alibaba, down -0.82%, despite pre- Advance shopping for Singles Day, Chinese Super Bowl spending.
Several government meetings are coming up, which could lead to more policies. Yes, China is limiting its graphite exports following US restrictions on chip imports, but graphite appears to be an extremely mild retaliation. California Governor Newsom will travel to China, which could be aimed at planning a Biden-Xi summit in San Francisco next month. Global macroeconomic events rain down on our parade, like my weekend. The probability that a political adjustment will be announced this weekend is not zero.
The Hang Seng and Hang Seng Tech indices fell -0.72% and -1.03% respectively, on volume down -9.23% from yesterday, or 73% of the one-year average. 172 stocks rose while 301 fell. The Main Board’s short turnover increased by +6.53% from yesterday, or 91% of the year-over-year average, as 21% of the turnover consisted of short turnover (remember that Hong Kong short turnover includes ETF short volume, which is determined by market makers’ ETF coverage). The value factor outperformed (i.e. fell less than) the growth factor, while small caps fell less than large caps. Real estate and materials were the only positive sectors, gaining +0.84% and +0.03% respectively, while utilities fell -2.03%, technology fell -1.67 % and discretionary consumption fell by -1.11%. The best performing subsectors were household products, business services and real estate. Meanwhile, technical equipment, health equipment and public services were among the worst. Southbound Stock Connect volumes were light, with mainland investors purchasing a net $238 million worth of Hong Kong-listed stocks and ETFs, with Meituan and SMIC seeing moderate net purchases, while the Hong Kong ETF Kong Tracker saw moderate/light net output.
Shanghai, Shenzhen and the STAR Board fell -0.74%, -0.96% and -0.95% respectively, on volume down -9.79% from yesterday, or 83% of the average over one year. 1,246 stocks advanced while 3,523 stocks declined. The value factor “outperformed” (i.e. fell less) than the growth factor, while small caps “outperformed” (i.e. fell less) than large caps. Real estate and materials were the only positive sectors, up +0.53% and +0.19% respectively, while communication services fell -2.56%, technology -1, 9% and health -1.45%. The best performing subsectors were power generation equipment, forestry and real estate. At the same time, telecommunications, communications equipment and software were among the worst performers. Northbound Stock Connect volumes were moderate as foreign investors sold a net -$225 million worth of mainland stocks. Cypc, Tianqi Lithium and Foxconn were small net buys, while CATL and Kweichow Moutai were moderate/small net sells and BYD was a small net sell.
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Last night’s performance
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Last night’s exchange rates, prices and yields
- CNY per USD 7.32 compared to 7.31 yesterday
- CNY per EUR 7.75 against 7.74 yesterday
- Yield on 1-day government bonds 1.60% compared to 1.80% yesterday
- Yield on 10-year government bonds 2.71% compared to 2.72% yesterday
- Yield on 10-year Chinese Development Bank bonds 2.76% compared to 2.78% yesterday
- Copper price -0.09% overnight
- Steel prices +0.14% overnight