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Key News
Asian equities were mostly lower as overweight countries including Japan, South Korea, Taiwan, and, for the first time, India, succumbed to selling pressure as the US dollar weakened overnight.
Hong Kong and Mainland China ended their sessions basically flat, though off their intra-day highs, as their regional peers came under pressure. Shanghai, Shenzhen, the Hang Seng, and the Hang Seng Tech indexes continue to sit at short-term support levels.
By far, the biggest news item was that Shenzhen Anju group, a Shenzhen-based state-owned-enterprise (SOE), will begin buying apartment buildings convert them into affordable housing. This could help alleviate the supply of 48,974 apartments for sale, totaling 5.16 million square meters, which is equivalent to two years of inventory. This follows an announcement from Guangzhou, another Tier 1 city, on May 30th that it would adopt a “purchase instead of construction model.” The Shenzhen policy purchases could be 50% less than comparable dals but the idea is soak up inventory, stabilize housing prices, and restore consumer confidence. Real estate gained +1.09% in Mainland China and +0.09% in Hong Kong, though it does not appear Chinese developer credit default swaps improved.
We’ll see if those Asian US dollar high-yield (HY) bonds react in US trading that no one wants, even with US HY at 52-week highs as US HY credit spreads near all-time tight spreads and the probability of US hard landing, not 0%. Also helping were the high prices paid for five plots of land in Shanghai, totaling RMB 10.95B. A Mainland media source reported that Foxconn, Apple’s iPhone maker in China, has hired 50,000 more workers in the last two weeks for its Zhengzhou factory. The company has been paying bonuses to lure workers in, as an apparent sign of the demand for the iPhone 16.
Hong Kong’s most heavily traded stocks by value were Tencent, which gained +1.32%, Alibaba, which pulled a James Bond by gaining +0.07%, Meituan, which fell -1.32%, China Construction Bank (CCB), which gained +0.74%, and BYD, which fell -1.7% on chatter that Biden Administration might ban Chinese autonomous driving software and testing in the US. Hong Kong-listed internet names were mixed though Bilibili -5.69% and Trip.com -3.5%. Remember, tomorrow at 10am, we have the State Council press conference on “Service Consumption.”
After the close, China Mobile and Semiconductor Manufacturing International (SMIC) reported financial results that appeared to be better than expected, while Hua Hong Semiconductor’s earnings report was a miss. Mainland investors sold a healthy amount of the Hong Kong-listed ETFs that they bought earlier in the week, another head-scratcher. The Mainland market had an uninspiring day, ending basically flat. The National Team had another day that was lower, based on light volumes in their favored ETFs. There was some media attention on the People’s Bank of China (PBOC) and it efforts to try to disincentivize retail buying of Treasury bonds by selling more supply as animal spirits are lacking.
China will release inflation data tomorrow. Meanwhile, internet earnings season will kick off in earnest next week with Meituan reporting on Tuesday. Please refer to the calendar below. We will be reporting on each release so stay tuned!
Q2 Financial Results Calendar:
- Tencent Music Entertainment 8/13
- Tencent & Meituan 8/14
- Alibaba 8/15
- Bilibili 8/16
- Baidu & Kuaishou 8/22
- NetEase 8/23
- Pinduoduo 8/29
- Trip.com 9/4
Oxford University professor Peter Frankopan’s The Silk Roads provides a history of the world from a Middle Eastern perspective as it examines trade routes between the East and West over time. I highly recommend the book, though please do not be intimidated by its length, as it is worth a read. I found the book fascinating, having been taught, like most Americans and Europeans, I imagine, the history of the world as beginning with ancient Greece, the Romans, and followed by the Renaissance, Napoleon, the British Empire, and the US. The center of power, wealth, science, and trade until 1492 was the Middle East and its trading partners were in Central Asia, China, India, and Asia. The book was an eye-opener to me as I found myself using Google Maps to study cities and rivers around the Caspian and Black Seas. Without giving too much away/spoiler alert, it does end with an interesting look at the last two Super Powers, or what he refers to as Imperial Powers, the British Empire and the US, and their policies starting around World War 1 in the Middle East and Central Asia. Have I ever heard someone refer to the US today as an Imperial Power? Me neither. Get the book!
The Hang Seng and Hang Seng Tech indexes diverged to close +0.08% and -0.47% on volume +7.5% from yesterday, which is 101% of the 1-year average. 146 stocks advanced, while 317 declined. Main Board short turnover +16% from yesterday, which is 92% of the 1-year average as 16% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Large and value outperformed small and growth. The top sectors were healthcare +1.57%, communication +1.13%, and financials +0.5%, while materials -1.1%, industrials -1.02%, and discretionary -0.77%. The top sub-sectors were software, pharmaceutical, and telecom services, while food/beverages, media, and auto were the worst. Southbound Stock Connect volumes were moderate, with Tencent and China Mobile moderate buys, while the Hong Kong Tracker ETF was a very large net sell, HS China Enterprise ETF and HS Tracker ETF large net sells.
Shanghai, Shenzhen, and STAR Board were mixed 0.0%, -0.12%, and +0.19% on volume +4.73% from yesterday, which is 77% of the 1-year average. 2,221 stocks advanced, while 2,653 declined. Growth and large caps outpaced value and small caps. The top sectors were staples +1.46%, real estate +1.07%, and communication +0.71%, while energy -0.59%, discretionary -0.43%, and industrials -0.42%. The top sub-sectors were forest, food, and water, while education, aerospace/military, and marine/shipping were the worst. Northbound Stock Connect volumes were moderate/light as foreign investors bought Foxconn, Kweichow Moutai and Zijin Mining in small size while Wuliangye, Gree and Zhongji Innolight were small net sells. Treasury bonds fell. CNY and the Asia dollar index made a small gain versus the US dollar. Copper and steel fell.
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Last Night’s Performance
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Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.17 versus 7.18 yesterday
- CNY per EUR 7.83 versus 7.83 yesterday
- Yield on 10-Year Government Bond 2.18% versus 2.14% yesterday
- Yield on 10-Year China Development Bank Bond 2.23% versus 2.19% yesterday
- Copper Price: -0.77%
- Steel Price: -0.81%