Key News
Asia started the week with a thud on light volumes as the US dollar strengthened overnight, and Middle East tensions weighed on risk sentiment.
Chatter that the US government will further tighten restrictions on chip exports to China was cited as a factor, though it was a light news day overall. Growth stocks and sectors underperformed as high oil prices lifted energy stocks in Hong Kong, where the sector gained +0.95%, and China, where it gained +1.95%.
Over the weekend, the China Securities Regulatory Commission (CSRC), China’s SEC, tightened rules on short selling, another attempt to prop up the Mainland market, though the Shanghai and Shenzhen Composites closed below our “lines in the sand” (i.e. index levels of 3,100 and 1,900). Meanwhile, the People’s Bank of China (PBOC) made a large injection of cash into the financial system. However, the 1-year medium-term lending facility (MLF) rate was kept unchanged at 2.50% as expected.
September economic data will be released tomorrow. The release will include industrial production, retail sales, property investment, and fixed asset investment along with Q3 GDP.
JD.com’s Hong Kong share class was off -0.48% as more analysts cut their price targets following the company’s pre-earnings conference call with sell side stock analysts. JD’s muted outlook weighed on internet names as Hong Kong’s most heavily traded stocks by value included Tencent, which fell -1.83%, Meituan, which fell -0.79%, and Alibaba, which fell -1.57%, despite filing for an IPO of Cainiao logistics.
Mainland investors bought a net $518 million worth of Hong Kong-listed stocks and ETFs, including a large net buy in the Hong Kong Tracker ETF. Hong Kong’s volume and breadth were awful with only 89 stocks advancing and 404 declining. Mainland markets were off with growth stocks and sectors underperforming as foreign investors sold a healthy -$885 million worth of Mainland stocks via Northbound Stock Connect.
The Belt and Road Forum begins tomorrow and will include representatives from 130 countries and several foreign leaders including Russia’s Putin. China has a large border with Russia, which explains an element of their relationship, though the optics are horrible to the West.
The Hang Seng and Hang Seng Tech indexes fell -0.97% and -1.76%, respectively, on volume that decreased -12.36% from Friday, which is 65% of the 1-year average. 89 stocks advanced while 404 declined. Main Board short turnover declined -6.54% from Friday, which is 76% of the 1-year average, as 19% of turnover was short turnover (remember that Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The value factor “outperformed” (i.e. fell less than) the growth factor as large caps outpaced small caps. Energy and utilities were the only positive sectors, gaining +0.95% and +0.16%, respectively, while real estate fell -1.88%, consumer staples fell -1.84%, and communication services fell -1.67%. The top-performing subsectors were energy and telecom while food, semiconductors, and consumer services were among the worst. Southbound Stock Connect volumes were moderate/light as Mainland investors bought a net $518 million worth of Hong Kong-listed ETFs and stocks with the Hong Kong Tracker ETF seeing large net buying, China Construction Bank and Meituan seeing moderate net buying while energy giant CNOOC, SMIC and XPeng had small net selling.
Shanghai, Shenzhen, and the STAR Board fell -0.46%, -1.11%, and -1.98%, respectively, on volume that increased +0.54% from Friday, which is 93% of the 1-year average. 1,302 stocks advanced while 3,499 declined. The value factor “outperformed” (i.e. fell less than) the growth factor as large caps outpaced small caps. Energy and utilities were the only positive sectors, up +1.94% and +0.05%, respectively, while real estate fell -2.12%, technology fell -2.1%, and consumer staples fell -1.64%. The top-performing subsectors were energy equipment, shipping, and gas, while semiconductors, fine chemicals, and restaurants were among the worst. Northbound Stock Connect volumes were light/moderate as foreign investors sold a net -$885 million worth of Mainland stocks. Zhongli Innolight, Foxconn, and Kweichow Moutai seeing light net buying. Meanwhile, Hai Tian and Zijin Mining were moderate net sells, and Longi, Sokon, and TFC were slight net sells. CNY and the Asia Dollar Index fell versus the US dollar. Treasury bonds sold off along with copper, though steel rallied.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.31 versus 7.31 Friday
- CNY per EUR 7.70 versus 7.68 Friday
- Yield on 1-Day Government Bond 1.55% versus 1.60% Friday
- Yield on 10-Year Government Bond 2.68% versus 2.67% Friday
- Yield on 10-Year China Development Bank Bond 2.74% versus 2.74% Friday
- Copper Price -0.18% overnight
- Steel Price +0.17% overnight
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