Key News
Asian equities had a strong day as they cheered President Trump’s choice of Scott Bessent as Treasury Secretary. Meanwhile, volumes were high due to today’s MSCI index rebalance.
Index funds and ETF managers globally need to trade their portfolios at the market’s close in order to replicate tomorrow’s refreshed indices due to the MSCI rebalance overnight.
Mainland China and Hong Kong remained on the schneid, i.e. losing streak, despite Bessent’s strong reputation and previous comments that tariffs are simply a negotiating tool. Having returned from a week in Asia, many investors believe that 60% tariffs are a given. Would replicating the trade policies that led to the Great Depression and 1929 stock market crash make sense to you? I’ve not read John Steinbeck’s The Grapes of Wrath since high school, but it left a strong and stark reminder of Hoover, Smoot, and Hawley’s catastrophic economic policy: high tariffs.
Anatole Kaletsky from Gavekal Research, who knows Bessent, wrote a worthwhile overview of the incoming Treasury secretary. Subscribers to their research would do well to check it out!
Also weighing on sentiment was Texas Governor Abbott’s statement that state agencies should divest from China. This is an interesting point, considering that Texas exports the most to China of any US state, having sent $25.7 billion worth goods to China in 2023, up +17% from 2022. The China export binge was led by oil and gas exports, which support 89,530 jobs, according to data gathered by the US-China Business Council.
Many China stocks were small net sells in MSCI’s rebalance. However, Alibaba, a net buy, gained +1.55%. Meanwhile, Tencent, a net sell, fell -1.35%.
Tencent bought 1.8 million shares today, at a cost of $90 million, which is in line with the daily buyback from the last week. Alibaba announced that it spent $59 million on Friday, buying back 722,176 US-listed shares, as their buyback accounted for 2.9% of the US volume.
Hang Seng announced the planned inclusion of Kuaishou, which gained +4.51%, and New Orient, which gained +3.85%, while removing New World Development, which fell -4.32%, on their December 6th index rebalance trading day. Meanwhile, the Hang Seng Tech index will add home appliance maker Midea, which gained +4.27%, and remove Weibo, which gained +1.65%.
Apple’s Hong Kong and Mainland China ecosystem stocks rose on Tim Cook’s meeting with Premier Li, along with executives from Rio Tinto, CATL, and Corning, according to Bloomberg.
Electric vehicle ecosystem stocks outperformed on reports that China and the European Union are still negotiating around potential tariffs. BYD gained +0.39%, XPeng fell -0.11%, Li Auto gained +1.75%, and NIO gained +4.45%.
Internet names were weak after the Cyberspace Administration of China (CAC) launched an investigation into internet platform algorithms, including “strictly prevent blindly compressing delivery time” due to an increase in traffic accidents and preventing “differentiated pricing for the same products” based on “age, occupation, consumption level, etc.” Investors shot first, though companies have until February 14th to comply. Count me as among those who are confused, especially since Premier Li just mentioned how important internet platform companies are to the economy.
Travel names rose on China waiving visas for several countries, including Japan. Mainland China bounced around the room, closing mixed as the Shanghai was off and Shenzhen was higher, as the ETFs favored by the “National Team”, or investment firms associated with China’s sovereign wealth, demonstrated below average volume.
The 1-year medium-term lending facility (MLF) rate was left unchanged at 2%, as expected, though it represented another opportunity lost for policymakers to give investor enthusiasm a boost. It was a bit of a head scratcher as “El Jefe” said the stock market should go up, though it has been falling recently. The Shanghai and Shenzhen Composite indices are below their pre-Golden Week holiday level in US dollars though Shanghai is now below in CNY. Both are still well above their pre-PBOC monetary, housing, and stock market “bazooka” support announcement levels, based on the levels on Monday September 23rd. The lack of additional catalysts have kept investors on the sidelines, though it could be time to press the gas pedal, in my opinion.
The Hang Seng and Hang Seng Tech indexes fell -0.41% and -0.26%, respectively, on volume that increased +16% from Friday, which is 143% of the 1-year average. 223 stocks advanced while 257 stocks declined. Main Board short sale turnover increased +18.4% from Friday, which is 164% of the 1-year average, as 18% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The value factor and large caps outperformed, i.e. fell less than, the growth factor and small caps. The top-performing sectors were Health Care, which gained 1.2%, Energy, which gained +0.29%, and Technology, which gained +0.01%. Meanwhile, the worst-performing sectors were Communication Services, which fell -0.98%, Consumer Staples, which fell -0.91%, and Materials, which fell -0.8%. The top-performing subsectors were consumer durables, media, and chemicals. Meanwhile, defense, software, and real estate were among the worst-performing subsectors. Southbound Stock Connect volumes were light as Mainland investors bought $154 million worth of Hong Kong-listed stocks and ETFs, including Alibaba and CNOOC, which were moderate net buys, Meituan, which was a large net sell, and SMIC, which was a small net sell.
Shanghai, Shenzhen, and the STAR Board diverged to close -0.10%, +0.41%, and -1.18%, respectively, on volume that decreased -16.64% from Friday, which is 155% of the 1-year average. 3,600 stocks advanced while 1,413 stocks declined. The value factor and small caps fell less than the growth factor and large caps. The top-performing sectors were Consumer Discretionary, which gained +0.31%, Real Estate, which gained +0.17%, and Energy, which gained +0.11%. Meanwhile, Technology fell -1.45%, Utilities fell -1.14%, and Health Care fell -0.50%. The top-performing subsectors were leisure products, education, and office supplies while aerospace, military, communication, and precious metals were the worst. Northbound Stock Connect volumes were high nearly 1.5X the average. CNY gained versus the US dollar. Treasury bonds also fell. Copper gained while steel fell.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
CNY per USD 7.24 versus 7.25 Friday
CNY per EUR 7.62 versus 7.55 Friday
Yield on 10-Year Government Bond 2.07% versus 2.08% Friday
Yield on 10-Year China Development Bank Bond 2.14% versus 2.15% Friday
Copper Price 0.07%
Steel Price 0.09%
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