Week in Review
- Asian equities were mixed this week, which began with gains in Korea on a short sale ban. Growth stocks and sectors regained some ground early in the week but ended it mostly lower.
- It was another busy week in economic news as China experienced slight deflation in October and the International Monetary Fund (IMF) raised its 2023 GDP forecast for China from 5.0% to 5.4%.
- The electric vehicle (EV) ecosystem got a boost this week from Li Auto’s Q3 earnings, which beat analysts’ expectations with a top line revenue increase of +271% year-over-year (YoY).
- The China Securities Regulatory Commission (CSRC), China’s SEC, commented on the “smooth” progression of US-China audit cooperation.
Asian equities were a sea of red on light volumes except for India, which managed a small gain as the specter of more US interest rate hikes weighed on risk assets globally following Fed Chair Powell’s press conference.
The potential for higher-for-longer interest rates weighed particularly on growth stocks and sectors though it was a broad decline as decliners outpaced advancers. CNY and the Asia Dollar Index have both weakened versus the US dollar, leading to a decline in the value of CNY denominated assets. Hong Kong suffered a deeper drawdown than Mainland China as the latter posted a small gain for the week.
The weak macroeconomic environment overshadowed several positives as the Biden-Xi meeting has been officially confirmed, Janet Yellen met with Vice Premier He Lifeng, and there was some chatter that the US and Chinese militaries will increase dialogue once again.
However, not all the news was positive as ICBC, the world’s largest bank by deposits, had its trading arm hacked, disrupting yesterday’s US Treasury auction. The hack’s disruption to Treasury trading highlights the importance of China to the US and vice versa.
Macau gaming stocks were weak following Wynn’s mixed Q3 while EVs were off following Li Auto’s strong Q3 results as the outperformer was hit with profit taking. Mainland investors bought the dip in Hong Kong, to the tune of $554 million through several large buys in the Hong Kong Tracker ETF.
Hong Kong’s most heavily traded stocks were Tencent, which fell -1.3% as the company will sell Meta’s VR headset, Semiconductor Manufacturing (SMIC), which fell -6.84%, and Alibaba, which fell -3.1% despite preliminary Singles Day sales looking strong.
The Mainland market was off on light volumes as several outperformers were hit with profit taking, including Huawei’s EV partner and today’s most heavily traded Seres Group, which fell -8.43%.
Foreign investors sold a net -$667 million worth of Mainland stocks via Northbound Stock Connect. Looking ahead, we have Singles Day tomorrow, Meituan’s financial results on Tuesday, Tencent and JD.com on Wednesday, and Alibaba on Thursday. We’ll be reporting from the West Coast next week, which should make for some early mornings!
Whenever you see the China bears calling for China’s economic apocalypse in the media, just remember the last recession in China was in 1993.
Happy Veterans’ Day! Thank you to all US veterans for your service!
The Hang Seng and Hang Seng Tech indexes fell -1.76% and -3.28%, respectively, on volume that decreased -0.30% from yesterday, which is 68% of the 1-year average. 104 stocks advanced while 374 stocks declined. The Main Board short turnover declined -1.9% from yesterday, which is 81% of the 1-year average, as 20% of volume was short sale turnover (remember that Hong Kong’s 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. All sectors were negative as consumer discretionary fell -2.98%, technology fell -2.76%, and consumer staples fell -1.87%. All subsectors were negative as semiconductors, autos, and retail were among the worst performers. Southbound Stock Connect volumes were moderate as Mainland investors bought a net $554 million worth of Hong Kong-listed stocks and ETFs, including the Hong Kong Tracker ETF, which was a large net buy, the Hang Seng Tech ETF, which was a moderate/large net buy, energy giant CNOOC, and Hua Hong Semiconductors were also small net buys.
Shanghai, Shenzhen, and the STAR Board fell -0.47%, -0.42%, and -0.42%, respectively, on volume that decreased -14.11% from yesterday, which is 94% of the 1-year average. 2,020 stocks advanced while 2,721 declined. Growth and value factors were both off large caps fell less than small caps. Energy and utilities were the only positive sectors, up +0.71% and +0.21%, respectively, while consumer discretionary fell -1.77%, communication services fell -1.57%, and real estate fell -1.05%. The top-performing sectors were gas, coal, and highways, while autos, insurance, and cultural media were the worst. Northbound Stock Connect volumes were moderate as foreign investors sold -$667 million worth of Mainland stocks with JAC small/moderate net buy, Sokon and Wanhua were small net buys while BYD, Goertek, and Changan Auto were small/moderate net sells. CNY and the Asia Dollar Index fell versus the US dollar. Treasury bonds rallied along with copper and steel.
Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.29 versus 7.28 yesterday
- CNY per EUR 7.79 versus 7.79 yesterday
- Yield on 1-Day Government Bond 1.40% versus 1.40% yesterday
- Yield on 10-Year Government Bond 2.64% versus 2.65% yesterday
- Yield on 10-Year China Development Bank Bond 2.71% versus 2.72% yesterday
- Copper Price +0.07% overnight
- Steel Price +0.42% overnight