Key News
Asian equities were largely higher as Hong Kong had a very strong day, while Thailand, the Philippines, and Mainland China outperformed, Japan underperformed, and India was closed for Maha Shivaratri, a Hindu festival celebrated annually in honor of the deity Shiva, according to Wikipedia.
Today’s subject line refers to Fleetwood Mac’s song “Go Your Own Way” as, unlike U.S.-listed China stocks Tuesday, Hong Kong shares had a very strong day. Growth stocks led the market higher. The most heavily traded stocks by value were Alibaba, up +4.82%, Xiaomi, up +5.83%, Tencent, up +3.44%, Meituan, up +0.94%, and Semiconductor Manufacturing International (SMIC), up +5.9%. Hong Kong and Mainland China volumes and breadth were very strong as Alibaba traded 5X the pre-September 2024 stimulus levels. Mainland China nearly traded RMB 2 trillion in total turnover, which is impressive since anything over RMB 1 trillion in volume traded was considered high a year ago. Indices are at/near big round numbers, with the Hang Seng at 23,787, the Hang Seng Tech Index at 5,953, Shanghai at 3,380, and Shenzhen at 2,097. Just as we mentioned yesterday, many investors are underweighting the space, which is “most uncomfortable” as the market melts up (yes, knocking on wood).
Several catalysts at play today:
- Bloomberg News reported that three major banks, the Agricultural Bank, Bank of Communications, and Postal Savings Bank, will be recapitalized with $55 billion of government capital, according to “people familiar with the matter.” The article states that this would be the first round of six SOE banks receiving RMB 1T of new capital to “replenish core tier-1 capital.”
- As we noted in yesterday’s post, though clearly underappreciated by the market’s reaction, DeepSeek announced it reduced pricing on its V3 model by 50% and R1 by 25%. Alibaba gained on the news that the company “has made its video generation artificial intelligence (AI) models free to use, further ramping up competition with rivals like OpenAI,” according to CNBC. Mainland China news reported the company also released its updated QwQ-Max model.
- The State Administration of Market Regulation met with private company executives from Alibaba, JD.com, LONGI Green Energy, JA Solar, Trina Solar, and BAIC Group to discuss the company’s “concerns and create a fairer market environment.” U.S. President Donald Trump’s deregulation push appears to have gone global.
- Chinese telecommunication stocks were a rare underperformer as Premier Li met executives on AI efforts.
- Baidu gained +3.32% after buying live streamer company YY Live for $2.1 billion. As YY’s 5th largest shareholder, we congratulate the company on the takeover.
- Brokerage stocks rose on rumors that CICC and Galaxy Securities will merge.
It was another strong day of buying from Mainland investors via Southbound Stock Connect with $1.337 billion of net buying concentrated in Xiaomi, Tencent, and Li Auto.
Trump’s copper tariff lifted copper prices. It is worth noting that copper, corn, soybeans, and China’s currency appear constructive on U.S.-China relations despite last Friday’s White House release. We are meeting with Terry Branstad, Trump’s first-term ambassador to China and long-time friend of Xi Jinping, next week in New York. I will report back on our meeting.
The Hang Seng and Hang Seng Tech indexes gained +3.27% and +4.47%, respectively, on volume up +12.31% from yesterday, which is 247% of the 1-year average. 411 stocks advanced, while 82 declined. Main Board short turnover increased by +5.56% from yesterday, which is 233% of the 1-year average, as 14% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The growth factor and small capitalization stocks gained more than the value factor and large capitalization stocks. The top-performing sectors were Real Estate, which gained +6.49%, Consumer Discretionary, which gained +5.08%, and Information Technology, which gained +4.19%. Meanwhile, the worst-performing sector was Energy, which fell -0.14% as the only negative sector. The top-performing subsectors were steel, consumer discretionary distribution, and food. Meanwhile, petroleum and telecommunications were among the worst-performing subsectors. Southbound Stock Connect volumes were 4x pre-stimulus levels as Mainland investors bought $1.337 billion worth of Hong Kong stocks and ETFs, including Xiaomi, Tencent, and Li Auto, which were large net buys, SMIC and Meituan were moderate net buys. They were net sellers of Hua Hong Semiconductor, a small net sell, and China Mobile, a large net sell.
Shanghai, Shenzhen, and the STAR Board gained +1.02%, +1.10%, and +2.17%, respectively, on volume up +2.20% from yesterday, which is 171% of the 1-year average. 4,063 stocks advanced, while 985 declined. Growth and small capitalization stocks outperformed value and large capitalization stocks. The top-performing sectors were Real Estate, up +1.86%, Financials, up +1.49%, and Materials, up +1.40%. Meanwhile, the worst-performing sectors were Energy, which fell -0.03%, and Communication Services, which fell -0.20%. The top-performing subsectors were steel, brokerage, and paper. Meanwhile, motorcycles, telecommunications, and automobiles were among the worst-performing subsectors. Northbound Stock Connect volumes were above average. CNY and the Asia Dollar Index both fell versus the U.S. dollar. The treasury curve steepened. Copper and steel rose.
New Content
Read our latest article:
2025 China Outlook: A Recipe For Re-Rating
Please click here to read
Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.26 versus 7.25 yesterday
- CNY per EUR 7.61 versus 7.62 yesterday
- Yield on 10-Year Government Bond 1.73% versus 1.73% yesterday
- Yield on 10-Year China Development Bank Bond 1.75% versus 1.74% yesterday
- Copper Price +0.01%
- Steel Price +0.78%
Read the full article here
