Week in Review
- Asian equities were mixed this week as some markets rebounded such as South Korea and a handful of internet stocks, especially Alibaba, continued their rebound.
- China’s Vice Premier Liu He held a video call with US Treasury Secretary Janet Yellen on Monday. The talks were described as “candid and substantive” and come as President Biden considers lifting tariffs on imported Chinese goods to curb inflation.
- Domestic Chinese semiconductor stocks saw gains on Tuesday as the US pressures Dutch semiconductor maker ASML to limit sales to China.
- Reports that the Ministry of Finance will further extend tax exemptions for buyers of new energy vehicles led to a rally in electric vehicle and clean energy ecosystem stocks.
Asian equities ended the week on a positive note despite the shocking assassination of former Japanese Prime Minister Abe. For the week, markets varied by country though many of the worst performers rebounded like South Korea, mirroring the bounce we have seen in many US tech stocks recently.
Hong Kong managed a small gain, led by the recently robust Alibaba HK (9988 HK), which gained +3.68% overnight on a largely up day for internet stocks, except for Meituan (3690 HK), which fell -1.08%, and JD.com HK (9618 HK), which fell -0.57%. Alibaba’s Hong Kong-listed shares closed above their 200-day moving average for the first time since February 22, 2021. There is some discussion about non-Connect eligible stocks such as Alibaba HK benefitting from the Southbound ETF Connect buying of HK listed Hang Seng Tech benchmarked ETFs.
Autohome jumped +4.28% in a delayed response to the strong June auto sales.
Hong Kong’s volumes were off on a quiet summer Friday though short sale volume did increase from yesterday. Most investors would be surprised to learn that 17% of today’s total volume was short sale volume, which is about the average. For Many large-cap stocks listed in Hong Kong, 10% to 30% of their total volume is short volume. One reason is Hong Kong’s large warrant (structured product) market that requires issuing banks to hedge.
Mainland China saw recent outperformers including the electric vehicle ecosystem and clean tech plays such as solar, wind and metals hit with profit-taking.
Following Janet Yellen’s conversation with Vice Premier Liu He, Biden and the team will discuss lifting US tariffs on Chinese consumer goods starting today. I would expect that if the US lifts tariffs, China may reciprocate, which would be a good thing for US exporters hurt by the rising US dollar.
The Hang Seng and Hang Seng Tech indexes gained +0.38% and +0.59%, respectively, on volume that was off -5.54% from yesterday, which is 74% of the 1-year average. 312 stocks advanced while 161 declined. Hong Kong short sale turnover increased +12.33% from yesterday, which is 82% of the 1-year average. Short sale turnover was 17% of total turnover. Value factors outperformed growth while large and small caps were basically flat versus one another. The top sectors were industrials, which gained +1.87%, real estate, which gained +1.86%, materials, which gained +1.84%, and utilities, which gained +1.36%. Meanwhile, healthcare fell -0.68% and consumer staples fell -0.36%. The top sub-sectors were cobalt, auto parts, nuclear energy, and cement while paper, electric vehicle (EV) charging, EV makers, and automakers were down. Southbound Stock Connect volumes were light as Mainland investors were net buyers of Hong Kong stocks including Tencent, Li Auto, and Xpeng while Meituan was sold for the 8th straight day.
Shanghai, Shenzhen, and the STAR Board were off -0.25%, -0.35%, and -0.69% on turnover that fell -2.12% from yesterday, which is 95% of the 1-year average. 2,513 stocks advanced while 1,861 stocks declined. Dividend and value factors outperformed growth while large and small caps were flat versus one another. Communication, health care, and utilities gained +0.67%, +0.59%, and +0.47, respectively, while discretionary fell -1.57%, materials fell -1.1%, and industrials fell -1.06%. The top sub-sectors were smart speakers, coronavirus drug makers, and consumer electronics while solar, lithium, battery, and auto parts were among the worst performers. Foreign investors bought $184 million worth of Mainland stocks via Northbound Stock Connect today. Short maturity Treasuries rallied, CNY appreciated slightly versus the US dollar, and copper rallied +2.51%.
Last Night’s Exchange Rates, Prices, & Yields
- CNY/USD 6.69 versus 6.70 yesterday
- CNY/EUR 6.81 versus 6.81 yesterday
- Yield on 1-Day Government Bond 1.22% versus 1.22% yesterday
- Yield on 10-Year Government Bond 2.84% versus 2.84% yesterday
- Yield on 10-Year China Development Bank Bond 3.09% versus 3.09% yesterday
- Copper Price +2.51% overnight
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