Key News
Asian equities had a positive day on light volumes, as yesterday’s rally by Nvidia sent growth/semiconductor stocks higher in the region.
The Yen traded above 160 this morning for the first time since 1986. In addition to Nvidia helping Hong Kong and Mainland China growth stocks, there was news that OpenAI will limit access to Chinese users, which is a positive catalyst for local AI plays and the broad technology ecosystem. I wonder whether private equity firms will mark down OpenAI based on losing 1.4 billion potential users. Strangely, Baidu’s Hong Kong share class only gained +0.46%, despite the company’s significant investment in space and leading position.
Though unconfirmed, the Hong Kong and Mainland China markets’ strong afternoon gains after morning losses were driven by rumors that the CSRC met to discuss the market’s recent downdraft. Western media has called the new CSRC head the “broker butcher” to scare you, but he has a long track record of being a force for good , i.e. a reformer, and the market performed well under his previous tenure. I think he wants another good market performance under his current tenure, too.
The news that 104 video games are being approved and 4 games are being approved for mobile game use also helped sentiment and gaming companies like Tencent and NetEase.
The biggest news today occurred after the close. Beijing’s local government announcing that first-time homebuyers’ minimum down payment ratio would be lowered to 20% from 30%, second-time homebuyers’ down payment ratio would be lowered to 30% from 40%, the loan rate to 3.5% (though the rate varies based on where in the city), and families with two or more children buying a second home will receive first-time home loan terms. Beijing is the last Tier One city (Shanghai, Guangzhou, and Shenzhen) to implement the 5/17 or May 17th directive from the national government to stabilize/address home price declines.
Hong Kong’s most heavily traded stocks by value were Tencent, which closed flat at 0%; Alibaba, up +0.28%; Meituan, up +0.17%; China Construction Bank, down -0.17%; and ICBC, up +0.87%. Mainland China also had a strong afternoon as a multitude of sectors outperformed, including big banks, technology, growth, healthcare, telecommunications, semiconductors, software, and hardware. After yesterday’s terrible advance/decline ratio, it was very strong/positive today! President Xi’s pro-technology speech yesterday may have been a factor. Premier Li and the State Council met to support and incentivize foreign investment in China’s economy, while the NDRC met on private equity support.
China’s 5-year Treasury Yield closed below 2% for the first time since April 2020 (i.e. COVID). The Mainland market’s retail animal spirits are tepid, though Mainland financial professionals are buying. To get the former going will require raising domestic/consumer confidence, which hopefully will be a top priority at the upcoming Third Plenum. Based on volumes in their favorite ETFs, there is little evidence of the National Team in today’s market.
A Mainland financial media source noted yesterday that 181 Hong Kong-listed stocks have repurchased HK $118 billion (USD $15 billion) of stock year to date as of Tuesday. Among the companies buying back stock, the article highlighted Tencent, which has repurchased HK $48.34 billion (USD $6.1 billion), Meituan, which has repurchased HK $12.45 billion ($1.6 billion USD), Kuaishou, which has repurchased HK $1.95 billion (USD $259 million), and Xiaomi, which has repurchased HK $2.70 billion (USD $347 million). I’m not sure why they didn’t mention Alibaba, Baidu, and a host of other companies that implement shareholder-friendly buybacks. If these companies thought China’s economy was doing so poorly, wouldn’t they be hoarding cash? If these companies felt their business prospects were terrible, wouldn’t they be hoarding cash? Instead, they are using cash to buy back stock. What else is unique about these companies? The founder is the Chairman and/or CEO of each of them! Do you think the founder has a monetary incentive to see the stock price higher? Me too.
China’s National Health Commission issued the “Implementation Plan for Weight Management Year.” Recommendations include studying “key technologies for weight management and developing pharmaceuticals and wearable devices…” while utilizing “information technology such as the Internet of Things and big data to innovate weight management models. Promote the application of artificial intelligence technology in formulating personalized nutrition and sports intervention plans.” I don’t need AI’s help, but I do need the willpower to resist my daughter’s homemade cookies and brownies, which she learned from Grandma!
The Hang Seng and Hang Seng Tech indexes gained +0.09% and +0.94%, respectively, on volume that increased +1.51% from yesterday, which is 93% of the 1-year average. 263 stocks advanced, while 198 declined. Main Board short turnover increased +1.31% from yesterday, which is 90% of the 1-year average, as 17% 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 outpaced value and large caps. The top sectors were consumer staples, up +1.83%; healthcare, up +1.53%; and technology, up +0.7%, while materials were down -1.26%, utilities were down -1%, and financials were down -0.16%. The top sub-sectors were semiconductors, food/beverages, and healthcare equipment, while consumer durables, materials, and insurance were the worst. Southbound Stock Connect volumes were light as Mainland investors bought $487 million of Hong Kong stocks and ETFs, with the Hong Kong Tracker ETF seeing a large net inflow and the Hang Seng China Enterprise ETF seeing a moderate net buy.
Shanghai, Shenzhen, and the STAR Board were up +0.76%, +2.02%, and +1.66%, respectively, on volume that declined -1.03% from yesterday, which is 77% of the 1-year average. 4,420 stocks advanced, while 556 declined. Growth and small caps outpaced value and large caps. The top sectors were communication, up +3.14%; technology, up +2.68%; and healthcare, up +1.35%, while energy was down -0.42 %, real estate was down -0.4 %, and consumer discretionary was down -0.23 %. The top sub-sectors were internet, software, and cultural media, while household appliances, precious metals, and marine/shipping were the worst. Northbound Stock Connect volumes were light as foreign investors were small net sellers, with Kweichow Moutai a moderate/large net sell. CNY struggled against the US dollar (again). The Treasury curve flattened. Copper fell while steel gained.
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How to Buy the Same Stocks as China’s Sovereign Wealth Funds
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.26 versus 7.26 yesterday
- CNY per EUR 7.78 versus 7.78 yesterday
- Yield on 10-Year Government Bond 2.22% versus 2.23% yesterday
- Yield on 10-Year China Development Bank Bond 2.34% versus 2.34% yesterday
- Copper Price -1.01%
- Steel Price +0.28%
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