• March 21, 2023

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Key News

Asian equities curbed the enthusiasm we saw in US equities yesterday as only Indonesia managed a positive day. Asian growth stocks were hit hard following Snap’s missed financial results which weighed on sentiment. Growth sectors/stocks in China and Hong Kong underperformed as energy was the only positive sector in both markets.

The Quad leader meeting (India, Australia, Japan, and the US) likely weighed on sentiment. This meeting will be followed by the thirteen countries’ Indo-Pacific trade effort that excludes China. Efforts to ostracize China from Asia’s economy are unlikely to succeed as it ignores economic reality. Japan imports and exports more goods to China than the US!

Both JP Morgan and UBS downgraded their 2022 China GDP estimates to 3.7% and 3%, which also was a factor in sentiment. Shanghai’s lockdown curtailed economic activity as Shanghai industrial production declined by -60% in April year-over-year. Yesterday, we mentioned the State Council release outlining thirty-three fiscal and monetary measures to be implemented to support the economy. The market was not interested in the support. The market’s yawn/ignoring their talk should cause them to step on the implementation gas pedal. The only sector that responded to the policy support release was traditional, non-EV automakers, as car sale taxes will be reduced.

EVs already enjoy this sales tax reduction fee. EV maker Xpev’s (XPEV US, 9868 HK) financial results beat Q1 estimates, but its Q2 revenue outlook weighed on sentiment. According to a report from The Standard, the market also ignored a release from the National Energy Administration that solar investment increased 204% to RMB 29B year-to-date through April. Breadth in both China and Hong Kong was awful as only 310 China stocks advanced and 52 in Hong Kong. On the plus side, we had both Kuaishou (1024 HK), and NetEase’s (NTES US, 9999 HK) financial results beating analyst expectations this morning pre-US market open/post-Hong Kong close. Healthcare was off as Junshi Bio (688180 CH) was hit -20% in a classic buy the rumor/sell the news after positive Covid trial results. Bit of a head-scratcher, though, par for the course today.

The Hang Seng and Hang Seng Index closed -1.75% and -3.48% on volume +8.09%, 79% of the 1-year average. There were only 52 advancing stocks, while 430 stocks declined. Hong Kong short sale volume increased +4.34%, which is 87% of the 1-year average. Value factors outperformed growth factors while large caps “outperformed”/i.e., fell less than small caps. Energy was the only sector in the green, while healthcare -4.66%, tech -3.44%, discretionary -3%, and staples -2.84%. Southbound Stock Connect volumes were moderate as Mainland investors were small net sellers of Tencent and Meituan. They were small net buyers of Kuiashou.

Shanghai, Shenzhen, and STAR Board declined -2.41%, -3.62%, and -4.73% on volume +15.28%, 92% of the 1-year average. There were only 310 advancing stocks, while 4,153 stocks declined. Energy was the only positive sector +0.01% while healthcare -4.24%, tech -3.79%, industrials -3.25% and materials -3.24%. Foreign investors sold a healthy -$1.433B via Northbound Stock Connect. Treasury bonds were flat while CNY declined -0.28% versus the US $ and copper gained +0.03%.

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.67 versus 6.65 yesterday
  • CNY/EUR 7.14 versus 7.09 yesterday
  • Yield on 10-Year Government Bond 2.77% versus 2.77% yesterday
  • Yield on 10-Year China Development Bank Bond 2.98% versus 2.97% yesterday
  • Copper Price +0.03% overnight

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