China Markets Lower As US Dollar & Oil Rise, Week In Review

Week in Review

• Asian equities were mixed overnight as Korea and Taiwan outperformed while Mainland China’s STAR Board and India underperformed.
• It was a choppy week for Asian shares with the catalyst of US-China talks and the specter of flaring Middle East tensions.
• Trade talks on Monday between the US and China in London resulted in an agreement on rare earth exports and established a framework for continuing negotiations.
• May’s Consumer Price Index (CPI) in China, reported Monday, fell by -0.1% year-over-year, compared to April’s -0.2% and expectations of -0.2%.

Key News

Asian equities were lower overnight as Israel’s preemptive strike on Iran sent oil higher as the US dollar appreciated versus local currencies.

Higher beta growth stocks were off more than broad indexes in both Hong Kong and Mainland China, as local and foreign investors unloaded their favorite stocks, including internet stocks, electric vehicles (EVs), and recent outperformers, especially healthcare. Mainland investors were net sellers of Alibaba, Tencent, and Xiaomi via Southbound Stock Connect, which accounted for 54% of Hong Kong turnover following yesterday’s 53%. The high Connect percentage indicates a lack of local and foreign investor dip buying.

Tencent filed that they bought 982,000 shares today, which is in line with the epic daily buyback amount. Alibaba filed that they bought 85,700 US-listed shares yesterday.

It is interesting to note that outperforming factors (Dividend Yield, Value, Low Volatility) and underperforming factors (Liquidity, Momentum, Growth) almost perfectly match the barbell strategy advocated by most equity strategists, though in the medium-to-long run, I lean heavily toward the latter. Hong Kong’s short turnover jumped +65% from yesterday, accounting for 17%.

Energy and aerospace stocks outperformed, while consumer plays were weak.

Real estate had a good day, including online broker KE Holdings, which gained +1.09%, after the Guangzhou Municipality announced 33 measures to stimulate the local economy, including eliminating all real estate purchase restrictions and consumer subsidies.

Labubu doll maker Pop Mart gained +2.17% following a sell side analyst price target upgrade, as the stock continues its meteoric rise.

The data could lead to more policy support from the upcoming Lujiazui Forum starting on June 18^th. It is important to note the importance of local government policy, which takes its lead from national policy, though it does not look the same everywhere, as China is a big place geographically and economically.

Premier Li and PBOC head Pan Gongsheng met separately with ECB President Lagarde.

Mainland media announced that President Xi will attend the China-Central Asia Summit in Kazakhstan on June 16^th, though someone mentioned he will not participate in the UN fall meetings in NYC. There was some chatter about President Xi’s health as he will turn 72 on Sunday. The last long overseas trip I can think of was his South America trip in May 2025, though in his defense, these long flights weigh on you as time marches on. I am still hopeful that President Trump and President Xi will have a birthday call on Trump’s 79^th birthday tomorrow.

The Air India crash was a terrible tragedy, and we send our condolences to our friends in the UK and India. As a frequent flyer of Boeing 787s, I’ve always been impressed by how quickly the big plane gets off the ground. The South China Morning Post article on the crash noted an expert’s observation that the pilots may have inadvertently raised the takeoff flaps instead of the landing gear, based on his observation.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.18 versus 7.17 yesterday
• CNY per EUR 8.26 versus 8.31 yesterday
• Yield on 10-Year Government Bond 1.64% versus 1.65% yesterday
• Yield on 10-Year China Development Bank Bond 1.70% versus 1.71% yesterday
• Copper Price -0.36%
• Steel Price -0.47%