Asian stocks ended a combined week, with mainland China and Hong Kong underperforming: the former posted a slight loss of 1% and the latter posted a slight loss for the week.
The lack of major stimulus points from the Central Economic Work Conference (CEWC) was cited as a factor. However, investors note that:
Blame seasonality, as there is no need to take on more risks as the end of the year approaches. Trading desk color volume has also fallen as investors and desks advance. Trump’s tariff threats and the functionality of US stocks continue to sideline American investors, some other people are starting to realize the functionality of mainland China and Hong Kong stocks.
There was a subtle but slight shift in the tone of the narrative around Trump as the President Elect invited Xi to his inauguration. Trump is focused on the US economy and the US stock market, which runs contrary to a “Trade War Version 2.0”. Negotiate tough? 100%. But we are sticking with our Art of Deal versus the Grapes of Wrath thesis (John Steinbeck’s book on Great Depression, which Smoot-Hawley tariffs did not cause, but certainly contributed to).
The People’s Bank of China (PBOC) will most likely cut rates next week, at the same time as the US Federal Reserve. That said, today has been a very bad day, as the magnitude (advances and declines) has been terrible. in both markets. As I posted on Twitter (@ahern_brendan), Hong Kong and mainland China futures were very weak during trading hours in the US. U. S. The yield on Chinese 10-year government bonds rose overnight to a fresh 52-week level. minimum and an all-time low of 1. 78%. Continental indices have rebalanced today, which arguably would have been a factor, albeit a difficult one to determine.
The ETFs favored by the “National Team”, which are financial institutions with links to sovereign wealth, had high volumes, which tried to stem the market’s loss. Mainland investors bought a healthy net $1.84 billion worth of Hong Kong-listed stocks and ETFs, including Alibaba and the Hong Kong Tracker ETF, which saw large net buying. For the week, Mainland investors bought $2.72 billion worth of Hong Kong-listed stocks and ETFs, bringing the year-to-date total to $96.37 billion versus 2023’s total of only $40 billion. It is also important to note that 4.54% of Alibaba is now held by Mainland investors via Southbound Stock Connect.
Growth stocks favored by investors underperformed, with Geely Auto falling -5. 09% and Baidu -0. 86% following the announcement that its investment in an auto company failed. Tencent fell by -1. 4% despite founder Ma “Pony” Huateng’s op-ed in the People’s Daily titled “Promoting the Healthy and Sustainable Development of the Digital Economy. “
The PBOC and nine other government agencies released a notice on supporting the “silver economy,” i.e., the elderly population. They placed an emphasis on retirement, pensions, and financial reforms. This follows yesterday’s Ministry of Finance notice titled “On the Implementation of Individual Income Tax Policy For Individual Pensions Nationwide”, which expands the 36-city pilot program nationwide. Similar to IRAs here in the US, individuals can make a tax-deductible contribution and invest RMB 12,000 ($1,649) annually. Thus far, only 20 million of the 60 million people who signed up for the scheme have invested. Long term, it is an obvious catalyst.
Chart1
New loans did not meet expectations and continue to increase month after month. This supports the thesis that demand, not supply, is necessary. There will be a big data release on Monday, adding space prices, commercial production, retail sales, constant asset investment, and real estate investment. The current market reaction is worth taking into account by policymakers, especially since “The Boss” says the stock market is expected to rise.
The Hang Seng and Hang Seng Tech indices fell -2. 09% and -2. 63% respectively, with volume up +0. 46% from yesterday, or 121% from the one-year average. 62 stocks rose, while 444 stocks fell. The Main Board’s short turnover increased by 10% from yesterday, or 125% of the year-on-year average, as 16% of turnover was made up of short turnover (the short turnover figure in Hong Kong includes the volume short ETF, which a decision is made through ETF hedging by market makers). The price theme and giant caps “outperformed” (i. e. , fell less) than the expansion and small cap theme. All sectors were negative, led by the decline through real estate, which fell -4. 41%, materials, which fell -4. 21%, and basic consumer goods, which fell -3 . 48%. The most productive active subsectors were commercial conglomerates and transportation. The subsectors that perform the worst are non-ferrous metals, family and private products, and food and beverages. Southbound Stock Connect volumes were 1. 5 times pre-stimulus levels as mainland investors bought a net +$1. 84 million of Hong Kong-listed stocks and ETFs, adding the Hong Kong Tracker ETF and Alibaba, which were strong net buys, and Tencent and XTALPI, which were moderate net buys. Meituan accounted for moderate/low net promotion with Semiconductor Manufacturing (SMIC) and Xiaomi.
Shanghai, Shenzhen, and the STAR Board fell -2.01%, -2.01%, and -2.09%, respectively, on volume that increased +10.9% from yesterday, which is 204% of the 1-year average. 786 stocks advanced, while 4,289 stocks declined. The value factor and small caps fell less than the growth factor and large caps. All sectors were negative, led lower by Real Estate, which fell -3.14%, Consumer Staples, which fell -2.93%, and Materials, which fell -2.81%. The top-performing subsectors were office supplies, cultural media, and leisure products. Meanwhile, education, insurance, and precious metals were among the worst-performing subsectors. Northbound Stock Connect volumes were nearly 3X the average. CNY and the Asia Dollar Index fell versus the US dollar. Treasury bonds rallied. Copper and steel fell.
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CNY consistent with USD 7. 28 to 7. 27 yesterday
CNY consistent with EUR 7. 63 7. 63 yesterday
Yield on 10-Year Government Bond 1.78% versus 1.82% yesterday
China Development Bank 10-year bond yield is 1. 85% versus 1. 89% yesterday
Copper value -0. 90%
Steel Value -1. 23%
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