Key News
Risk-off ruled the day in Asia, except for India, which had a positive day while Hong Kong underperformed.
MSCI China officially entered a correction after rising 31% from January 22nd to May 20th. Growth stocks that outperformed the index by nearly 10% over the same period will be off about 15% from their high after today. If you take a step back, the rally is still intact, though the last month has been a grind lower that “feels” worse.
Overnight, the dates for the Third Plenum, China’s big economic meeting, were released, starting on July 15th. Today’s market action should catalyze policymakers to implement monetary policies. Such policies could help bring investors back into the space.
Micron’s financial results and China’s May industrial profits of +0.7% versus April’s +4% were cited as culprits in Hong Kong and China’s downdraft though a strong US $, summer doldrums and a lack of catalysts in advance of mid-July Third Plenum were uncited factors. Like many Asian currencies, China’s renminbi (CNY) has been grinding lower versus the US dollar, closing today at 7.26 versus 7.10 at year-end (remember CNY is quoted as $1 in CNY, so increases equals depreciation). While Hong Kong stocks are pegged to the US dollar, CNY’s depreciation means the underlying companies are worth less.
The market’s downdraft is a bit surprising as there have been positives recently, such as Beijing’s home purchase restrictions being lifted, reports of further market and economic policy support, and continued corporate stock buybacks. Hong Kong and China are at technical support levels, with Shanghai at the 2,950 level, Shenzhen at 1,600, Hang Seng at just below 18,000, and HS Tech at 3,600.
The National Team was a clear buyer of Mainland China ETFs and potentially mega-cap stocks, which have big weights in indices, as Kweichow Moutai, banks, energy, and telecom giants were among the few positive Mainland gainers. Southbound Stock Connect saw a healthy $468mm of net buying of Hong Kong stocks from Mainland investors on today’s weakness. Growth stocks underperformed in both markets, with Hong Kong’s most heavily traded by value were Tencent -1.99%, Xiaomi -7.18%, Meituan -2.82%, Alibaba -1.78%, and AIA -2.2%. Mailand appliance makers such as Haier -3.27% and Gree -1.08% are concerned the China EU EV tariffs could widen to the export-dependent sector.
The Hang Seng and Hang Seng Tech fell -2.06% and -2.73% on volume +9.54% from yesterday, 102% of the 1-year average. 48 stocks advanced, while 447 declined. Main Board short turnover increased by +8.79% from yesterday, 98% 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). Value and large caps fell less then growth and small caps. All sectors were negative. Telecom and food/staples were the only positive sub-sectors, while food/beverages, technical hardware, and pharmaceuticals were the worst. Southbound Stock Connect volumes were moderate/light as Mainland investors bought $468mm of Hong Kong stocks and ETFs with ICBC, Xiaomi, and CCB small net buys with Tencent, CNOOC, and Meituan small net sells.
Shanghai, Shenzhen, and STAR Board fell -0.9%, -1.67%, and -1.96% on volume, -2.56% from yesterday, 75% of the 1-year average. 675 stocks advanced, while 4,270 declined. Value and large caps fell less than growth and small caps. All sectors were negative, except financials, which gained +0.22%. The only positive sectors were telecom, land transport, and banking, followed by motorcycles, education, and construction machinery. Northbound Stock Connect volumes were moderate/light as foreign investors were net sellers of Mainland stocks with Kweichow Moutai, Midea and Foxconn were small net buys Wanhua, CATL and Sevenstar were small net sells. Treasury bonds rallied. CNY fell versus the US dollar. Copper was off while steel gained.
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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 7.77 versus 7.76 yesterday
- Yield on 10-Year Government Bond 2.20% versus 2.22% yesterday
- Yield on 10-Year China Development Bank Bond 2.31% versus 2.34% yesterday
- Copper Price -0.14%
- Steel Price +0.23%
