Asian equities had a rough night, except India, on the specter of higher US interest rates.
Hong Kong was far weaker than China as several banks had a very poor day on real estate exposure concerns, lower rates on their US dollar deposits, a prominent broker downgraded several bank stocks, and limits on local government financing vehicles. Many of the bank stocks went ex-dividend today, so their price drops appear bigger due to their 7%/8% payouts. Against the backdrop of a quiet week for financial professionals, as many in Asia take the US shortened week off, the banks’ drop was likely exacerbated by the low liquidity. High dividend-paying SOEs had been a popular trade that appears to have become very unpopular as investors all try to squeeze out the exit.
China’s tit-for-tat rare earth export ban is likely Negotiating 101 in advance of Janet Yellen’s China visit. Hopefully, Yellen can have a productive visit as climate czar John Kerry is reportedly planning a China visit. Hong Kong’s most heavily traded by value were Tencent -2.56%, China Construction Bank -3.28%, Alibaba HK -1.39%, Meituan -3.13% and AIA -3.98%. Only 5 of the top 50 most heavily traded stocks gained today as the Hang Seng fell below the 19,000 level to close at 18,533. Mainland China didn’t take the news as dramatically as foreign-owned Hong Kong, posting small losses. After the close, it was announced Premier Li presided over a State Council meeting focused on the economy. In advance of the month-end Politburo meeting, which will focus on the economy, many investors are very frustrated by the lack of stimulus and action to bolster the economy (including me).
The Hang Seng and Hang Seng Tech fell -3.02% and -1.69% on volume +11.97% from yesterday, which is 86% of the 1-year average. 59 stocks advanced, while 440 declined. Main Board short turnover fell -25.42% from yesterday, which is 92% of the -1 year average, as 18% of turnover was short turnover. Value factors outperformed growth factors, while large caps outpaced small caps. All sectors were negative, with real estate down -3.06%, staples down -2.81%, and financials down -2.60%. All sub-sectors were negative, with insurance, consumer service, and media as the worst performers. Southbound Stock Connect volumes were light as Mainland investors bought $412 million of Hong Kong stocks, with Kuiashou a very small net sell and Tencent, Meituan, and XPeng small net buys.
Shanghai, Shenzhen, and STAR Board fell -0.54%, -0.37%, and -0.36%, respectively, on turnover -5.38% from yesterday, which is 90% of the 1-year average. The value factor outperformed the growth factor as small caps outpaced large caps. The top sectors were discretionary +0.43%, real estate +0.42%, and communication +0.33%, while healthcare -1.35%, materials -1.16%, and industrials -0.66% were the worst performing. The top sub-sectors were computer hardware, motorcycles, and real estate, while pharma, office supplies, and base metals were the worst performing. Northbound Stock Connect volumes light as foreign investors sold -$185 million of Mainland stocks, with Ping An a small net sell, Kweichow Moutai and Foxconn were very small net sells. CNY gained +0.24% versus the US dollar closing at 7.23, while the Asia dollar index made a small gain. Treasury bonds rallied while copper was off and steel flat.
Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.23 versus 7.25 Yesterday
- CNY per EUR 7.87 versus 7.88 Yesterday
- Yield on 10-Year Government Bond 2.63% versus 2.64% Yesterday
- Yield on 10-Year China Development Bank Bond 2.78% versus 2.78% Yesterday
- Copper Price -0.03% overnight
- Steel Price +0.00% overnight