Key News
Asian equities were mixed/lower overnight. Monday, the People’s Bank of China (PBOC), China’s central bank, lowered the 1 and 5-year loan prime rate by 10 basis points each to 3.55% and 4.2%, respectively. The market gave the move a thumbs down as investors had hoped for a more aggressive cut. Equity markets were weak Monday and today. Meanwhile, Hong Kong and Mainland China have shortened weeks, so we should expect thin/light-volume days, which can exacerbate price movements. However, Mainland China and Hong Kong have had a strong start to the month, as the upcoming market holiday is likely driving short-term profit-taking.
US Secretary of State Blinken met with President Xi, Foreign Minister Qin Gang, and China’s senior diplomat Wang Yi in Beijing. The meetings appear to have gone well, which paves the way for further diplomatic trips. The lack of military communication was not resolved though no media accounts mention that the issue preventing it is the Trump-era sanction of the current defense minister during his previous role. Remove the sanction and remove the issue, in my opinion. Regardless, the Blinken trip is a step forward to repairing the most important economic relationship globally. The US-China political relationship is a major overhang, as many researchers noted that the underweight to China in portfolios is back to October 2022 levels.
CNY was weaker on the PBOC cut, closing at 7.17 CNY per USD versus Friday’s close of 7.12 CNY per USD. Alibaba was off -1.51% as Daniel Zhang takes the reins of the cloud services unit, Eddie Yongming Wu takes over at the E-Commerce unit, and Joe Tsai takes on the role of Chairman from Executive Vice Chairman. The “surprise” announcement is anything but a surprise other than the timing based on previous announcements. Alibaba’s split into six companies will force investors to value the company based on the sum of its parts.
Healthcare giant Wuxi Biologics (2269) fell -17.02% after announcing first half of 2023 revenue was half of the 2023 revenue growth target. Considering that the company did not lower the year-end goal, the market’s reaction seems extreme as it pulled down peers. Foreign investors were buyers of Mainland Chinese stocks, while Mainland investors trimmed their Hong Kong exposure. Mainland markets were off but not nearly as much as Hong Kong.
The Hang Seng and Hang Seng Tech indexes were off -1.54% and -2.47%, respectively, on volume that decreased -8.3% from yesterday, which is 81% of the 1-year average. 84 stocks advanced, while 421 declined. Main Board short turnover decreased -30.37% from yesterday which is 80% of the 1-year average as 17% of turnover was short turnover. Value factors “outperformed”/fell less growth factors as large caps “outperformed” small caps. All sectors were negative, with healthcare down -6.41%, real estate falling -3.44%, and discretionary closing lower -2.38%. Utilities were the only positive sub-sector, while pharma, semis, and auto were the worst. Southbound Stock Connect volumes were moderate as Mainland investors sold -$377 million of Hong Kong stocks, with Meituan a moderate/large net sell, Tencent and Wuxi Biologics a large net sell.
Shanghai, Shenzhen, and the STAR Board were off -0.47%, -0.05%, and 0.0%, respectively, on volume that decreased -1.57% from yesterday, which is 118% of the 1-year average. 1,510 stocks advanced, while 3,169 stocks declined. Growth factors outperformed value factors as small caps outpaced large caps. The top sectors were tech +1.06%, communication +0.16%, and discretionary +0.06%, while real estate -2.12%, energy -1.58%, and staples -0.98%. The top sub-sectors were aerospace, software, and industrial machinery, while the forest industry, real estate, and building materials were the worst. Northbound Stock Connect volumes were moderate as foreign investors bought $242 million of Mainland stocks, with Kweichow Moutai a small net sell, Foxconn a small net buy, and Ping An a moderate net sell. CNY and the Asia dollar index are off versus the US dollar. Cooper made a small gain while steel nearly a -1% loss.
Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.17 versus 7.12 Friday
- CNY per EUR 7.84 versus 7.79 Friday
- Yield on 10-Year Government Bond 2.67% versus 2.66% Friday
- Yield on 10-Year China Development Bank Bond 2.82% versus 2.82% Friday
- Copper Price +0.06% overnight
- Steel Price -0.82% overnight
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