Growth Stocks Rebound On Strong Retail Sales

Key News

Asian equities exhibited resiliency overnight despite escalating tensions in the Middle East.

Both Hong Kong and Mainland China opened lower but finished higher, led by growth stocks. There was another factor rotation, as growth and momentum factors outperformed value, dividend, and low-volatility strategies.

Several catalysts drove markets, with the most important being the release of economic data and the National Bureau of Statistics (NBS) press conference. Retail sales were a strong beat, while industrial production missed expectations. Real estate was a top performer in both markets after the NBS press conference concluded with a discussion on further measures needed for the sector. I remain a believer in real estate bonds over real estate stocks, given their attractive yields—currently double those of U.S. high-yield bonds—but the market remains indifferent.

This week’s Lujiazui Forum is focused on financial markets, and we may receive some policy guidance. Goldman Sachs released three reports on China’s “Prominent 10”—internet and growth stocks with strong revenue growth and inexpensive valuations compared to the U.S. “Magnificent 7”—which garnered significant attention locally. The NBS press conference also highlighted the upcoming 618 (June 18) e-commerce event, underscoring the government’s emphasis on online consumption.

There is increased chatter about Hong Kong-listed stocks relisting in Mainland China, though it remains unclear whether internet companies can do so due to their variable interest entity (VIE) structures. I will continue to monitor this and report back tomorrow. These companies would likely be highly sought after by local investors, as brokers had a strong day.

Xiaomi rose 4.23% after founder Lei Jun announced that the YU7 SUV price will be released at the end of the month. Kuaishou gained 3.45% following an analyst upgrade on Kling AI revenue. Mainland investors bought $731 million worth of Hong Kong-listed stocks via Southbound Stock Connect. Household appliances lagged despite confirmation that subsidies will continue through year-end. Trading volumes were lower compared to Friday’s index rebalance.

May Economic Data Highlights:

• New Home Prices Month-over-Month: -0.22% (April: -0.12%)
• Used Home Prices Month-over-Month: -0.5% (April: -0.41%)
• Retail Sales Year-over-Year: +6.4% (April: +5.1%; consensus: 4.9%)
• Online Retail Sales Year-over-Year: +8.5%
• Industrial Production Year-over-Year: +5.8% (April: 6.1%, consensus: 6.0%)
• Fixed Asset Investment Year-to-Date Year-over-Year: 3.7% (April: 4.0%, consensus: 4.0%)
• Property Investment Year-to-Date Year-over-Year: -10.7% (April: -10.3%, consensus: -10.5%)
• Residential Property Sales Year-to-Date Year-over-Year: -2.8% (April: -1.9%)

Key Takeaways from the NBS Press Conference:

• Officials acknowledged that China’s economy has not been immune to the global slowdown and “uncertainty of trade policies.” The Communist Party of China (CPC) Central Committee remains focused on “more active and promising macro policies,” stabilizing employment, enterprises, markets, and expectations, while expanding domestic demand and promoting innovation.
• Consumption subsidies continue to support retail sales, with home appliances, audio-visual equipment, communication equipment, cultural and office supplies, and furniture all posting year-over-year growth between 25.6% and 53%.
• The 618 (June 18) online shopping festival was highlighted, with online retail sales now accounting for 24.5% of total retail sales of consumer goods.
• Falling commodity prices are impacting import growth, as China is a major importer of energy and raw materials.
• Innovation-driven development was emphasized, with industrial robot output up 32% year-over-year from January to May.
• China’s trade with ASEAN, the European Union, and Belt and Road Initiative countries increased by 9.1%, 2.9%, and 4.2%, respectively, from January to May.
• In Q4 2024, the CPC Central Committee decided to “stop the real estate market from falling and stabilize it,” implementing several policies. The real estate market is improving but remains in a period of adjustment, with confidence still recovering. The government will “promote urban renewal and renovation of dilapidated houses” and increase the supply of “good houses,” signaling more policy support is likely on the way.

I will continue to monitor developments, especially around the potential relisting of Hong Kong-listed stocks in Mainland China and further policy signals from the Lujiazui Forum.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.18 versus 7.18 Friday
• CNY per EUR 8.31 versus 8.26 yesterday
• Yield on 10-Year Government Bond 1.64% versus 1.64% yesterday
• Yield on 10-Year China Development Bank Bond 1.72% versus 1.70% yesterday
• Copper Price -0.13%
• Steel Price +0.51%