• June 5, 2023

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Key News

Asian equities were largely higher following the US market’s rip higher on Friday though China was off and several markets were closed for Vesak Day, one of the most sacred days for Buddhists.

China’s April economic release was an expected dud due to Shanghai’s lockdown. Retail sales were driven lower by fall in -22.7% fall in restaurant sales though online retail sales have rebounded year-to-date as of the end of April.

Hong Kong internet stocks had a mixed night in response as Meituan fell -2.45%, Tencent fell -1.24, Alibaba HK gained +2.92%, Kuaishou gained +0.81%, and JD.com HK gained +0.2%. JP Morgan’s analyst team upgraded many Chinese internet stocks following their March 15th “uninvestable” downgrade that marked the low. Tencent had a small net outflow from Mainland investors via Southbound Stock Connect while Meituan had another small net buy.

Earnings season for China internet names kicks off this week. Tencent Music Entertainment will report after the US close today, JD.com reports tomorrow, and Tencent will report after the close in Hong Kong on Wednesday. Meanwhile, Baidu released its 2021 ESG report overnight.

An official release today noted that the output of new energy vehicles has already increased more than +40% compared to this time last year. Xpeng and Nio gained in Hong Kong while Li Auto traded lower.

The People’s Bank of China (PBOC), China’s central bank, did not lower the Medium-Term Lending Facility (MLF) as had been expected. However, the central bank did lower the mortgage rate for first-time homebuyers to 4.4% from 4.6%. Real estate was a strong performer in both China and Hong Kong as the move demonstrates continued support for the sector.

Foreign investors sold a healthy $1.2 billion worth of Mainland stocks today. The foreign selling is interesting as policymakers continue to signal policy support. Meanwhile, Mainland media has called a bottom in stocks. We shall see!

Today’s Wall Street Journal notes Congress’ reconciliation process taking place on the America Competes Act. The bill could shorten the window of the Holding Foreign Companies Accountable Act (HFCAA) to two years from three years unless that provision is struck down in reconciliation. This would mean that delisting could be less than a year away. It does sound like regulators on both sides of the Pacific have been making progress towards a solution and a deal could be announced soon. Shortening the window is problematic as many US broker-dealers and custodians do not allow for ADR conversion, which would mean their retail clients’ positions could go to zero.

The Hang Seng and Hang Seng Tech Index bounced around the room to close +0.26% and +0.01%, respectively, on volume that was -20% lower than Friday, which is just 64% of the 1-year average. 297 stocks advanced and 167 declined. Growth factors outperformed value factors while small caps outperformed large caps. The best performing sectors were real estate, which gained +2.9%, healthcare, which gained +1.19%, and discretionary, which gained +0.86% while communication was off -1.1% and financials were off -0.18%. Mainland investors were net buyers of Hong Kong stocks via Southbound Stock Connect though Tencent was a small net sell and Meituan was a net buy.

Shanghai, Shenzhen, and the STAR Board were off -0.34%, -0.28%, and -1.41%, respectively, on volume that was +4% higher than Friday, which is 73% of the 1-year average. 1,989 stocks advanced while 2,190 stocks declined. Value factors outperformed growth factors along and large caps outperformed small caps, mirroring the Hong Kong market. The best performing sectors were energy, which gained +2.06%, real estate, which gained +1.29%, and communication, which gained +0.56%. Meanwhile, healthcare fell -2.1%, tech fell -1.45%, and financials fell -1.06%. Foreign investors sold a healthy $1.2 billion worth of mainland stocks today via Northbound Stock Connect. The yield on the 10-Year Treasury gained slightly while CNY was off slightly versus the US dollar and copper gained +0.72%.


Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.79 versus 6.79 yesterday
  • CNY/EUR 7.06 versus 7.07 yesterday
  • Yield on 1-Day Government Bond 1.26% versus 1.26% yesterday
  • Yield on 10-Year Government Bond 2.82% versus 2.81% yesterday
  • Yield on 10-Year China Development Bank Bond 3.01% versus 3.00% yesterday
  • Copper Price +0.72% overnight

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