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Key News
Asian equities were mixed, as India outperformed, Mainland China and Hong Kong underperformed, and Japan closed for New Year’s.
President Trump’s inauguration is creeping closer, causing weak investor sentiment on tariff concerns. The renminbi was slightly weaker versus the US dollar, while the offshore traded renminbi weakened to 7.33 CNH per USD. The 10-year Chinese government bond yield fell to another 52-week and all-time low of 1.62%.
The Caixin Manufacturing purchasing managers’ index (PMI)’s “miss” of 50.5 versus expectations of 51.7 and November’s 51.5 was also cited as a factor in the risk off environment, as the “official” National Bureau of Statistics (NBS) manufacturing PMI was also a slight miss. Both were above 50, indicating that manufacturing is still growing, albeit slower. PMI estimates have been optimistic, which has led to the unintended consequence of the actual numbers undershooting, but still showing expansion.
Many financial stocks went ex-dividend today, weighing on indexes. For example, ICBC went ex-dividend with a dividend of RMB 0.14 per share, and the stock fell by RMB 0.12. Brokers were especially weak, though it was a very poor day from a breadth perspective, with very few stocks able to buck the downdraft. Alibaba fell -1.33% after announcing the sale of its 70% stake in supermarket chain Sun Art, which fell -20.16%, for $1.6 billion. While the sale is a loss for the company, we would assume the proceeds could be used as a dividend or fund further buybacks. The company also filed that it spent $1.3B buying 15 million ADRs in Q4, reducing its outstanding shares by 0.60%.
A few consumer plays held up today due to a Ministry of Commerce videoconference on “upgrading the retail industry as an important means to expand domestic consumption in all directions.” Over 400 local government officials and trade groups participated in the call. The focus of the call was to “boost consumption” using several examples of local governments spurring consumption. The bureaucracy is moving!
Another interesting note was that in Beijing and Guangzhou, second-hand home sales increased by 66% and 17% year-over-year in December, respectively. Many mortgage holders had their rate automatically reduced by 60 basis points on January 1st on earlier announced mass mortgage refinancing. Another positive but obviously non-factor was December auto sales, which appeared strong. Mainland investors bought a healthy $837 million worth of Hong Kong-listed stocks today.
The Hang Seng and Hang Seng Tech indexes fell -2.18% and -2.47%, respectively, on volume that increased +121% from Tuesday, which is 125% of the 1-year average. 46 stocks advanced, while 463 declined. Main Board short turnover increased +172% from Tuesday, which is 149% of the 1-year average, as 19% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The value factor and large caps fell slightly less than the growth factor and small caps. All sectors were negative, led lower by Financials, which fell -3.83%, Consumer Staples, which fell -3.27%, and Health Care, which fell -3.08%. The top-performing subsectors were consumer durables and textiles. Meanwhile, semiconductors and securities firms were among the worst-performing subsectors. Southbound Stock Connect volumes were 2X pre-stimulus levels, as Mainland investors bought a net $837 million worth of Hong Kong-listed stocks and ETFs, including ICBC, CNOOC, China Mobile, and CCB. Meanwhile, Weimob and Tencent were net sold.
Shanghai, Shenzhen, and STAR Board all closed lower by -2.66%, -2.57%, and -3.40%, respectively, on volume that increased +3.82% from Tuesday, which is 133% of the 1-year average. 825 stocks advanced, while 4,230 stocks declined. The growth factor and small caps fell slightly less than the value factor and large caps. All sectors were negative. The worst-performing sectors were Communication Services, which fell -3.85%, Technology, which fell -3.76%, and Financials, which fell -3.51%. The top-performing subsectors were retail, precious metals, and leisure products. Meanwhile, securities firms, hardware, and power generation were among the worst-performing subsectors. Northbound Stock Connect volumes were above average. CNY and the Asia Dollar Index were basically flat versus the US dollar. Treasury bonds rallied. Copper and steel fell.
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Last Night’s Performance
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Last Night’s Exchange Rates, Prices, & Yields
CNY per USD 7.29 versus 7.29 yesterday
CNY per EUR 7.53 versus 7.58 yesterday
Yield on 10-Year Government Bond 1.61% versus 1.68% yesterday
Yield on 10-Year China Development Bank Bond 1.66% versus 1.74% yesterday
Copper Price -0.68%
Steel Price -0.03%
