Week in Review
- Asian equities were mixed this week as Russia’s Wagner revolt dominated headlines going into the week while Dragon Boat Festival travel data indicated a 12.8% increase in the number of trips taken during the holiday compared to 2019.
- The potential and need for more stimulus captivated investors’ minds this week as Premier Li Qiang reiterated China’s 5% GDP target during a speech at the World Economic Forum, hosted in Tianjin on Tuesday.
- Electric vehicle ecosystem stocks kept the momentum going this week on the extension of tax subsidies through 2027.
- On the international business and government relations front, Bernard Arnault, CEO of global luxury goods giant LVMH, visited China this week while US diplomat Daniel Kritenbrink discussed potentially increasing the number of direct flights between the US and China, which is still down significantly from pre-pandemic levels.
Key News
Asian equities ended the month and quarter mixed as Mainland China, Thailand, and India outperformed on light volumes.
June PMIs met low expectations as the Non-manufacturing PMI indicated expansion at above 50 while the manufacturing PMI indicated contraction at below 50. As we suspected, the “bad news is good news” phenomenon played out as the declining PMIs raise the necessity for more stimulus. Shanghai and Shenzhen reversed their intra-day decline to climb higher following the release of the PMIs, as investors anticipated policy adjustments. While there is certainly a slowdown in the industrial sector, driven by re-shoring and slowing global demand, certain segments are seeing growth, especially non-ferrous metals, driven by demand for electric vehicles.
Two Mainland financial media outlets noted restrictive real estate policies, dubbed the “double limit”, would be loosened and more supportive, demand-focused policies would be introduced. The policy moves are being implemented following tepid Q2 property sales though real estate stocks were mixed overnight. Key to raising real estate sales will be lowering the currently sky-high down payment requirements. This has been done in certain regions and on a temporary basis. When it was done recently in Chengdu, property sales doubled almost overnight, according to a local source. China’s officials have a habit of testing policy changes in certain areas and for limited amounts of time before rolling them out nationwide.
Hu Xijin, a social media commentator associated with China’s government, was active again for the fourth day commenting on his investments. He wrote “I have paid more attention to the economy, and I am eager for the introduction of national economic stimulus policies.” Essentially, China’s government is telling us to buy Mainland stocks. I would suspect that large institutional investors in China are doing the same, which is likely inserting a level of technical support as Shanghai closed above the 3,200 level and Shenzhen closed above the 2,000 overnight. Mainland China, which is predominantly owned by investors in China, outperformed Hong Kong, which is predominantly owned by foreign investors.
Hong Kong-listed electric vehicle (EV) ecosystem stocks were strong today as Xpeng gained +10.38% after announcing that their new G6 sedan will have an MSRP of $29,010 and a production target of 10,000 vehicles per month. Company spokespeople also said that pre-orders have been stronger than anticipated. BYD gained +0.89%, Li Auto gained +0.30%, and NIO gained +4.84%. Meanwhile, the Mainland-listed CATL, the world’s largest battery maker, gained +2.83% as it benefits from Tesla’s use of their batteries in China-manufactured EVs.
Hong Kong-listed internet stocks were off -0.6% overnight. Alibaba fell -1.22%, Meituan fell -1.92% after buying an AI tech firm, JD.com fell -0.38%, and NetEase was flat.
Portfolio window dressing may have played a role in last night’s price action. Professional investors buy winners and sell losing stocks at quarter-end due to quarter-end and semi-annual transparency on their portfolios.
The People’s Bank of China (PBOC) released their quarterly survey of Mainland residents. The number of residents who said they will spend more this year increased by +1.2% to 24.5%, while 58% said they would save more, an increase of only +0.1%, and 17.5% said they would invest more, a decline of -1.3%.
Did anyone else notice the lack of media attention to Nike’s financial results, released yesterday after the US close. The sportswear giant noted their China revenue increased +25% year-over-year (YoY), though an increase of only 16% YoY with currency moves, versus North America’s increase of only +5% YoY?
It was interesting that Trip.com, which gained +0.2% overnight, announced a RMB 10,000 cash bonus for employees having a child. Meanwhile, Guangzhou announced that families with two or more children can receive home loans at favorable rates. This is likely beta testing on policies that could effectively raise the birth rate, though no national policy has been formalized.
The Hang Seng and Hang Seng Tech indexes fell -0.09% and -0.56%, respectively, on volume that decreased -1.25% from yesterday, which is 71% of the 1-year average. 328 stocks advanced while 156 declined. Main Board short turnover declined -14.97% from yesterday, which is 58% of the 1-year average, as 14% of turnover was short turnover. Growth and value factors were mixed as small caps outperformed large caps. The top-performing sectors were healthcare, which gained +1.86%, energy, which gained +1.78%, and consumer staples, which gained + 1.1%. Meanwhile, communication services fell -0.76%, consumer discretionary fell -0.41%, and technology fell -0.25%. The top-performing subsectors were auto, food, and pharmaceuticals, while consumer durables, retail, and software were the worst. Southbound Stock Connect volumes were very light as Mainland investors bought a net $212 million worth of Hong Kong stocks, including Meituan, a very small net buy, and Tencent and Kuiashou, which were very small net sells.
Shanghai, Shenzhen, and the STAR Board gained +0.62%, +1.08%, and +0.37%, respectively, on volume that increase +6.16% from yesterday, which is 101% of the 1-year average. 3,737 stocks advanced while 968 declined. Growth and value factors both performed well while small caps outpaced large caps. The top-performing sectors were energy, which gained +1.23%, materials, which gained +1.04%, and industrials gained +0.88%, while communication services fell -1.28%, utilities fell -0.79%, and real estate fell -0.74%. The top-performing subsectors were fine chemicals, chemical fibers, and communication equipment, while telecom, power, and internet were the worst-performing. Northbound Stock Connect volumes were moderate as foreign investors bought a net $505 million worth of Mainland stocks as Kweichow Moutai was a moderate/light net sell, LONGi Green Energy, and China Tourism Duty Free were both moderate net sells. CNY and the Asia Dollar Index fell -0.29% and -0.14%, respectively, versus the US dollar. Treasury bonds rallied while copper was off and steel was up.
Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.26 versus 7.25 yesterday
- CNY per EUR 7.93 versus 7.88 yesterday
- Yield on 1-Day Government Bond 1.62% versus 1.27% yesterday
- Yield on 10-Year Government Bond 2.64% versus 2.65% yesterday
- Yield on 10-Year China Development Bank Bond 2.78% versus 2.80% yesterday
- Copper Price -0.27% overnight
- Steel Price +0.64% overnight
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