Week in Review
- Asian equities were mostly lower this week as Mainland China, South Korea, and Pakistan outperformed as China cut the 1 and 5-year loan prime rates (LPRs), which help set mortgage rates.
- TAL Education kicked off Q3 internet earnings season on Thursday by beating on both the top and bottom lines.
- A spate of upcoming Hong Kong IPOs were announced this week, including Horizon Robotics, Jiangsu Hengrui Pharmaceuticals (Mainland listed), and Chery electric vehicles.
- Alibaba began presales for its Singles Day (11/11) sales festival on Monday night, noting that among top-sellers have been iPhones and home furnishings.
Key News
Asian equities ended an off week mixed as Mainland China and Hong Kong outperformed while India and Japan underperformed.
Mainland China was the only local market to end the week up, while Hong Kong was off, though not nearly as much as the region (-1% versus -3%).
The National People’s Congress will meet in Beijing from November 4th to 8th, though the news had no effect on markets, as it came right at market close. The agenda did not mention economic policy support, as the first item to be discussed was the “preschool education law”. Expectations are for an articulation of fiscal policy support with special purpose bond issuance outlined further. Some speculate the late release is needed to build the stimulus package.
Also after the close, Prime Minister Li Qiang said that he met with the State Council to discuss “the economic situation and the implementation of a package of incremental policies.” I like the sound of that versus the NPC agenda!
The October 1-year medium-term lending facility (MLF) rate was left at 2%, as expected, though the volume of lending increased from September’s RMB 300 billion to RMB 700 billion, versus expectations of RMB 600 billion.
It was a fairly quiet night from a news perspective, though India and China appear to mending their relationship following Modi and Xi’s meeting at the BRICS conference, which was followed up by Indian businesses lobbying for more cooperation with China.
Growth and technology stocks outperformed in both Mainland China and Hong Kong, led higher by internet, autos, healthcare, and clean tech. The electric vehicle (EV) ecosystem was strong following Tesla’s results, as Geely gained 2.00%, Li Auto gained 5.10%, BYD gained +2.38%, and Great Wall Motors gained +4.66%, though Xpeng fell -1.88%.
Consumer play Pop Mart fell -6.72% after a large shareholder unloaded shares following the strong financial results.
It was another strong day Mainland Chinese buying of Hong Kong-listed stocks and ETFs via Southbound Stock Connect, with $1.18 billion worth of net buying today, which brings the week’s total to $4.69 billion and the year-to-date total to $73 billion versus 2023’s total of only $40 billion.
Mainland financial media highlighted that a “star” Mainland fund manager made Alibaba his top position while Kweichow Moutai dropped to his third-largest position, having previously been #1 for a long time.
Volumes have come off their extreme levels as foreign skepticism of the rally combined with the US election have left many investors on the sidelines. A 60% tariff is only viewed as bad for China though Amazon, Walmart, Home Depot, and Costco would have a big problem. That explains why I don’t think it will happen!
The Hang Seng and Hang Seng Tech indexes gained +0.49% and +1.21%, respectively, on volume that declined -2.41% from yesterday, which is 133% of the 1-year average. 333 stocks advanced while 151 declined. Main Board short turnover declined -11.44% from yesterday, which is 98% of the 1-year average, as 12% 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 caps outperformed the value factor and large caps. The top-performing sectors were Technology, which gained +3.65%, Health Care, which gained +1.78%, and Consumer Staples, which gained +1.36%. Meanwhile, Industrials fell -0.94%, Materials fell -0.84%, and Energy fell -0.80%, to make up the worst-performing sectors. The top-performing subsectors were semiconductors, autos, and pharmaceuticals. Meanwhile, food & beverage, telecom, and energy were among the worst-performing subsectors. Southbound Stock Connect volumes were high at almost 2X the average as Mainland investors bought a healthy $1.18 billion worth of Hong Kong-listed stocks and ETFs, including the Hong Kong Tracker ETF, which was a large net buy, Alibaba, which was a moderate net buy, GCL Tech and Tencent, which were small net buys. Meanwhile, Meituan and Semiconductor Manufacturing International (SMIC) were small net sells.
Shanghai, Shenzhen, and the STAR Board rose +0.59%, +1.85%, and +1.39%, respectively, on volume that increased +16.57% from yesterday, which is 205% of the 1-year average. 4,082 stocks advanced while 942 declined. The growth factor and small caps outperformed the value factor and large caps. The top-performing sectors were Technology, which gained +1.71%, Industrials, which gained +1.4%, and Communication Services, which gained +1.31% while Utilities fell -1.79%, and Financials and Energy fell -0.34%. The top-performing subsectors included power generation equipment, comprehensive industry, and household products. Meanwhile, precious metals, insurance, and power industry were among the worst-performing subsectors. Northbound Stock Connect volumes were high, at just over 2X the average. CNY and the Asia Dollar Index fell versus the US dollar. Copper fell while steel rose.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.12 versus 7.12 yesterday
- CNY per EUR 7.71 versus 7.68 yesterday
- Yield on 10-Year Government Bond 2.15% versus 2.17% yesterday
- Yield on 10-Year China Development Bank Bond 2.24% versus 2.24% yesterday
- Copper Price -0.08%
- Steel Price +1.51%
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