Main news
Following Apple’s downgrade, Asian stocks followed US stocks. Investors have been slow to pick up on the company’s slowing growth rate, weighing on regional growth and tech stocks and Apple’s suppliers as Taiwan and South Korea underperform.
Some interesting things are happening today. Larry McDonald, a macro strategist and author of the Bear Trap Report, pointed out that Apple’s market capitalization is 15 times that of Alibaba. A similar timely comparison could be made between Tesla’s $789 billion market cap and BYD’s $78 billion, even though the latter was dethroned as the global NEV (hybrid and pure EV) leader yesterday. . BYD Hong Kong and mainland China shares rose +0.57% and +0.30% as the EV ecosystem sold off due to concerns over price competition. Yes, there is EV competition, but an element of these gains comes from gasoline automakers.
In December, the central bank provided RMB 350 billion ($9 billion) in secured supplementary loans (PSLs, pun intended) to three policy banks for the first time since November to support the real estate market. We have taken very clear measures. According to Reuters, the bank will make the loan to support “China’s urban village redevelopment and affordable housing programs to shore up the struggling real estate market.” Surprisingly, real estate stocks in Hong Kong and mainland China, which tend to struggle with new share issuance, showed little reaction to the move. We continue to advocate for investors to ignore stocks and consider bonds. Bonds have been stable and in some cases actually rising as companies restructure their debt.
Coincidentally, troubled developer CIFI Holdings today announced proposed terms for restructuring its offshore USD debt. No one is going to look at the Asian high-yield US dollar bond market, even though it yields nearly twice as much as the US high-yield bond market. China Securities Journal, a widely followed mainland financial institution, featured an economist who believes interest rates in 2023 and bank reserve requirements will be lowered in 2024. I didn’t fill this headline at all.
The Hong Kong Tracker ETF was the most actively traded by value today as mainland investors bought HK$4.22 billion of the ETF. This is the first time I recall that ETFs are the most traded securities in Hong Kong. Market makers had to create ETF shares, which led to a surge in short sales volume as a hedge against risk. Tencent and NetEase rose +1.35% and +0.96%, respectively, following yesterday’s news that they had fired their heads of online gaming following last Friday’s proposed online gaming spending rules. The significance of this is that it proves that the Chinese government is a big bureaucracy that sometimes has no idea what one hand is doing and is not James Bond 007 as the media would have us believe. It also reinforces President Xi’s APEC speech to the United States. We talk to executives about foreign investors and changes in corporate psychology. The dismissal is a clear signal of mistakes by officials who failed to issue new investor- and business-friendly directives.
The Apple news weighed on suppliers such as Hong Kong-listed Sunny Optical, -3.84% and mainland-listed GoerTek, -3.37%. News yesterday that the US government had pressured ASML to restrict sales to Chinese companies weighed on semiconductor and high-tech markets. Tencent continues to buy back 3.36 million shares, following on from yesterday’s 3.38 million shares, December 29th’s 3.42 million shares, and December 28th’s 3.45 million shares. Hong Kong’s internet market slumped, with Alibaba down -1.87%, Meitan down -1.76%, and Jingdong down. com was -3.19% and Baidu was -2.43% for no reason. Baidu’s decline is surprising after the company called off the acquisition of JOYY to boost its cash reserves. Mainland media pointed out that 17 internet companies and the Shanghai Market Supervisory Authority will work together to ensure compliance with the rules. Mainland stocks fell despite foreign buying through Northbound Stock Connect and the launch of several mainland stock ETFs focused on the top 50 mainland stocks.
Yesterday, South Korea’s president announced plans to abolish capital gains tax, following a ban on short selling ahead of elections later this year. The move worked, but it pales in comparison to the Chinese government’s efforts to bring investors back into the market. Psychological moves such as buying stocks and ETFs from sovereign wealth funds have done little to adjust investor sentiment. Hong Kong’s stamp duty has been reduced, but this is an increase in frictional costs and probably not a facilitator. Corporate share buybacks and dividends will have an impact as Tencent and Alibaba compete to become the most shareholder-friendly companies, with many others following suit. China’s economy is gradually recovering. Ultimately, the key will be to restore investor confidence, and while some moves, such as those in South Korea, can have a direct impact, that will take time.
Hang Seng and Hang Seng Tracker fell -1.84% from the previous day with -0.85% and volume of +3.43%, which corresponds to 75.9% of the 1-year average. 145 stocks rose in price and 316 stocks fell. Mainboard short sales volume increased by +70.13% from yesterday. This corresponds to 97% of the average over the past year, as 22% of the volume was short volume (Hong Kong’s short volume includes the amount of ETF short sales caused by the market maker’s ETFs). Remember that hedges). Value factors and large-cap stocks “outperformed”/declined less than growth factors and small-cap stocks. The top sectors were Telecommunications +0.89%, Energy +0.88%, Utilities +0.68%, High Tech -3.14%, Discretionary -1.55%, and Materials -1.37%. The top subsectors were software, utilities, and energy, while technical hardware, semiconductors, and consumer durables were the worst. Southbound Stock Connect volume was moderate to light, Hong Kong Tracker ETF saw large net inflows, as mainland investors bought $829 million in Hong Kong stocks and ETFs, Hang Seng China Enterprises The ETF, Hang Seng Tech ETF, is expected to receive moderate net inflows. On the other hand, Great Wall Motors and SMIC had smaller net outflows.
The trading volume of Shanghai, Shenzhen and STAR Board was different: +0.17%, -0.61%, -1.19%, -6.44% from yesterday, which is 85% of the 1-year average. The number of rising stocks was 1,872, and the number of declining stocks was 2,947. Value factors and large-cap stocks “outperformed”/declined less than growth factors and small-cap stocks. The top sectors were Energy +1.42%, Utilities +1.1%, Telecommunications +0.71%, Tech -2.01%, Discretionary -0.73%, and Consumer Staples -0.42%. The top sub-sectors were coal, ports and marine, while electronics, software and semiconductors were the worst. Volume on Northbound Stock Connect was light to moderate as foreign investors bought $236 million in mainland stocks, with Changan Automobile, Midea and Agricultural Bank becoming moderate net buyers, CATL, Longhi Green Energy and iFlytek were moderately sold.
last night’s performance
Last night’s exchange rates, prices and yields
- CNY/USD 7.14 vs. 7.14 yesterday
- Chinese Yuan/Euro 7.80 vs. 7.83 yesterday
- The 10-year government bond yield is 2.55% (2.56% yesterday)
- National Development Bank of China 10-year bond yield 2.72% (2.72% yesterday)
- Copper price -0.29%
- Steel price +0.47%
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