Fund Flows Highlight Curbed Enthusiasm

Key News

Asian equities had mixed performance overnight as the US dollar weakened and South Korea led gains in the region.

Neither Hong Kong nor Mainland China managed to hold onto early morning gains, as both markets slid to post small losses. Hong Kong’s decline was driven by PDD’s significant financial results miss and large investments that weighed on the company’s bottom line. Sell-side analysts’ estimates were off by a wide margin; in their defense, the company has never broken out Temu’s results from domestic China revenue, making transparency an ongoing issue. PDD’s investment plans raised concerns about margin contraction and the potential for a price war, which weighed on E-Commerce stocks including Alibaba (-1.95%), Meituan (-0.53%), and JD.com Inc. (-1.4%).

The downdraft was despite a Mainland China media report noting that early sales for the 618 (June 18th) shopping festival, similar to Singles Day, were up fourfold year-over-year (YoY), with 80,000 brands seeing double the turnover and 500 million orders already placed.

The decline in Hong Kong largely matched the performance of US-listed China stocks, though not all internet stocks were down. Kuaishou Technology (+5.95%) rose after strong first-quarter results driven by its Kling artificial intelligence initiative. Other notable gainers included NetEase Inc. (+2.81%), Tencent Music Entertainment Group (+1.36%), Bilibili Inc. (+2.29%), and Trip.com Group Limited (+1.48%). Trip.com and other consumer-related stocks were higher on a government report estimating that 2.15 million people, an increase of 12.2% year-over-year, will travel overseas or visit China during the upcoming Dragon Boat Festival.

Pop Mart International Group Limited (-7.12%) declined, though there was no clear catalyst aside from the stock’s 141% year-to-date gain. Electric vehicles (EVs) and autos were mixed and continued to face pressure following reports that dealers sold new cars as old inventory to lower prices. BYD Company Limited (-2.68% in Hong Kong) refuted claims of an aggressive dealer buildout in Shandong Province that had attracted significant attention in Mainland China.

In a weekend interview, Great Wall Motor Company Limited’s Chairman Wei Jianjun stated, “The ‘Evergrande’ in the automobile industry already exists, it just hasn’t exploded yet.” Reports cited April car production at 2.23 million units versus 1.75 million in sales, with EV inventories rising to 850,000 units from 660,000 at year-end. Following a sharp rally, BYD appeared due for a pullback, though the 50-day moving average may act as support.

Hong Kong saw relative strength in air freight, coal, beverages, restaurants, and oil and gas, while banks, Tencent, Alibaba, Meituan, JD.com, and BYD weighed on the indices. In Mainland China, healthcare, precious metals, oil, coal, and transportation/ air freight outperformed.

The Mainland China fund industry reached assets under management of RMB 33.12 trillion after an increase of RMB 900 billion in April. Most flows went into money market funds (RMB 664 billion), followed by fixed income (RMB 140 billion) and stock funds (RMB 112 billion), reflecting a lack of risk appetite. A Reuters article yesterday highlighted that “Chinese savers decry falling deposit rates but still won’t spend more,” noting that “at the end of March, total household deposits surpassed 160 trillion yuan ($22.3 trillion), up 10.3% from a year before, and equivalent to 118% of last year’s gross domestic product (GDP).” The ongoing decline in real estate prices and the absence of a social safety net remain key issues.

The summit of the Association of Southeast Asian Nations (ASEAN), the Cooperation Council for the Arab States of the Gulf, and China concluded a joint summit in Kuala Lumpur overnight. While there may be headlines about China waiving visas, the joint statement focused on economic integration, connectivity, energy security, sustainability, digital transformation, innovation, agriculture, and people-to-people exchange.

As I observed during my recent travels in Asia, there is a big world out there conducting business with one another, largely unconcerned with developments in Washington, DC.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.19 versus 7.19 yesterday
• CNY per EUR 8.14 versus 8.16 yesterday
• Yield on 10-Year Government Bond 1.68% versus 1.73% yesterday
• Yield on 10-Year China Development Bank Bond 1.71% versus 1.71% yesterday
• Copper Price +0.08%
• Steel Price -0.77%