Week in Review
- Asian equities were lower this week except for onshore China, which was the only market in the region to end the week in positive territory.
- The US Bureau of Industry and Security (BIS) issued a notice to semiconductor manufacturing companies stating that licenses are now required to export certain semiconductor equipment and high-end chips to China, which weighed heavily on the sector in the US and China.
- The People’s Bank of China (PBOC), China’s central bank, relaunched the pledged supplementary lending (PSL) program to help shore up key developers’ finances so that prepaid projects can be completed.
- The China Association of Automobile Manufacturers announced September production was 2.672 million cars, which is +11.5% year over year and sales of 2.61 million, up +9.5% year over year.
Friday’s Key News
Asian equities ended a poor performance week on a high note following yesterday’s US stock market intra-day mega reversal. Once again, onshore China, which includes markets in Shanghai and Shenzhen and is 95% owned by investors in China, had a strong day. Both markets ended near the day’s highs and outpaced offshore China, which includes Hong Kong and US-listed Chinese stocks. The Hang Seng closed up +1.21%, but off its intra-day high of +3.9%. The Hong Kong market faded in the afternoon once the China market closed (Hong Kong closes at 4 pm while China closes at 3 pm).
Yes, we live in macro world as CNY declined -0.33% versus the US dollar as the Asia dollar index hit another 52-week low.
The healthcare sector gained +8.24% in Mainland China and +7.04% in Hong Kong on news that the State Medical Security Bureau will exempt ”innovative” medical equipment from China’s centralized drug procurement program. There was also news about a liver drug being approved, and the medical equipment purchase plan announced a few weeks ago having a strong start. The Chinese government buys 294 drugs in bulk for all government hospitals at a negotiated rate. This is interesting, especially considering yesterday’s CPI print’s sharp rise in US medical inflation.
Speaking of inflation, China’s September CPI was 2.9% versus expectations of 2.8% and August’s 2.5%, driven by higher pork prices due to the summer’s drought/heat wave. September’s PPI was 0.9% versus expectations of 1% and August’s 2.3%. Maybe global inflation could be coming down? Mainland investors also cheered US Commerce head Gina Raimondo saying the US will look at lifting some tariffs due to inflation as the odds that the GOP takes the House from Democrats now could be 50/50.
Foreign investors bought $1.038 billion worth of Mainland stocks today via Northbound Stock Connect following yesterday’s -$1 billion sale. Bloomberg News noted a high-profile Chinese hedge fund manager has called the bottom in the Mainland markets and gone back into stocks. Fingers crossed!
Hong Kong-listed internet stocks had a good day though shorts pressed their bets despite today’s strength amid another strong day of buying from Mainland investors via Southbound Stock Connect. Tencent had a very strong net buy via Southbound Stock Connect while buying back another 2 million shares today.
China’s Party Congress will kick off on Sunday. We have a webinar next Tuesday morning to review what investors should be watching for.
The Texas Retirement System has decided to equally (50-50) blend the MSCI Emerging Markets Index with the MSCI EM Ex China Index versus holding the MSCI EM index alone, despite the recommendation of their consultant. The reason given was China’s large weight in the index.
The chaos caused by the US decision to start restricting chip exports to China has only started to be recognized. It is worth noting that Volkswagen just bought a piece of a Chinese car chip maker! US companies will be at a severe disadvantage to their global competitors, though the new restrictions may impact chipmakers globally, many of which use US-made equipment in their fabs.
The Hang Seng Index and Hang Seng Tech gained +1.21% and +1.51%, respectively, as volume increased +19.94% from yesterday, which is 82% of the 1-year average. 397 stocks advanced, while 95 declined. Main Board short turnover increased +27.82% from yesterday, which is 87% of the 1-year average, as 18% of trading was short today. Growth factors outperformed value factors as small caps outperformed large caps. All sectors were positive as healthcare gained +7.04%, technology gained +2.32%, and industrials gained +2.22%. Meanwhile, financials lagged at +0.65%. The top performing subsectors were healthcare-related, including pharmaceuticals, biotech, and healthcare equipment, though semiconductors had a strong day as well, while food and diversified financials lagged. Southbound Stock Connect volumes were moderate as Mainland investors bought Tencent in size again, Wuxi Biologics had a very strong net buy, Meituan was a moderate net buy, and Li Auto was a small net buy.
Shanghai, Shenzhen, and the STAR Board gained +1.84%, +2.59%, and +3.07%, respectively, as volume increased +18.31% from yesterday, which is 87% of the 1-year average. 4,279 stocks advanced, while 341 stocks declined. Growth stocks outpaced value stocks as small caps outpaced large caps. The top performing sectors were healthcare, which gained +8.07%, technology, which gained +3.44%, and consumer discretionary, which gained +2.31%. Meanwhile, utilities fell -0.01%, and real estate fell -0.98%. The top performing subsectors were healthcare-related such as biotech and pharmaceuticals, office supplies, and semiconductors, while telecom and airports had an off day. Northbound Stock Connect volumes were moderate as foreign investors bought +$1.04 billion worth of Mainland stocks today, concentrated in several stocks such as Longi Green Energy and Wuxi AppTec. Treasury bonds rallied as the 10 Year Treasury yield closed at 2.69%, CNY declined -0.33% versus the US dollar to 7.19, and copper gained +0.8%.
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.20 versus 7.17 yesterday
- CNY per EUR 7.01 versus 7.00 yesterday
- Yield on 1-Day Government Bond 1.20% versus 1.20% yesterday
- Yield on 10-Year Government Bond 2.70% versus 2.73% yesterday
- Yield on 10-Year China Development Bank Bond 2.87% versus 2.89% yesterday
- Copper Price +0.8% overnight