Growth Stocks Lead Mainland China & Hong Kong Higher

Key News

Asian equities were largely higher as Mainland China, Hong Kong, Australia, and India outperformed while Japan underperformed. Malaysia was closed for Nuzul Al-Quran, which is a day dedicated to reading and reflecting on the Quran, while the Philippines was closed for Maundy Thursday, also known as Holy Thursday, commemorating the Last Supper derived from the Latin word mandatum, meaning commandment/mandate (the only thing I remember from high school Latin is semper ubi sub ubi!).

There was significant local media attention given to President Xi’s meeting with US CEOs, his candor on the economy and opportunity for foreign investors/corporations, and an olive branch on mending US-China relations. Today, we will meet with senior officials from Mainland Chinese exchanges and regulators visiting New York. Also garnering attention was President Xi’s meeting with the Dutch Prime Minister focused on semis and EVs.

Reuters is reporting, “US intelligence officials in late February told senators working on a biotech security bill that Chinese pharmaceutical firm WuXi AppTec had transferred US intellectual property to Beijing without consent.” Remarkably but unsurprisingly, the Congressional committee hasn’t asked to meet with Wuxi AppTec despite the company employing thousands of Americans at multiple locations in the US. Congress is judge, jury, and executioner, with no witnesses for the defense allowed. Absurd.

The South China Morning Post reported President Xi directed, “The People’s Bank of China must gradually increase the trading of treasury bonds in its open market operations,” based on a speech on October 30. China has avoided quantitative easing, which raises the skepticism that it will occur, with Exhibit A being that Treasury bond prices have fallen today.

Continued chatter surrounding a consumption upgrade with appliances and autos the focus. There is net positive news, with growth stocks leading both Hong Kong and China. Hong Kong’s most heavily traded were Tencent +0.6% as the company bought 3.28mm shares today, Meituan +6.26% as Moody’s upgraded the company to positive from stable. However, the company has virtually no debt, and Meituan’s bond due in 2030 has outperformed its stock since October 27, 2020, by 61%, AIA flat/0.0%, Alibaba HK +2.11%, and Xiaomi +1.22%.

Strong breadth in both Hong Kong and China and strong net buying via Northbound Stock Connect as foreigners bought $322mm of Mainland stocks today and Southbound as Mainland investors bought $485mm of Hong Kong stocks today. Tencent extended its Southbound net buy streak to eight days in a row and 16 of the last 18 days. Year to date, Mainland investors have bought $17.022B of Hong Kong stocks and ETFs. Northbound Stock Connect has seen $13.412B of net inflow into Mainland stocks. Chinese mutual funds and ETFs are filing their annual reports, with a large Mainland equity ETF reporting 29% of its shares outstanding were owned by the Central Huijin Investment, China’s sovereign wealth fund that has been stabilizing the Mainland market by buying ETFs, as of year-end. I’d assume that number has only gone up!

The Hang Seng and Hang Seng Tech gained +0.91% and +2.48% on volume +1.43% from yesterday, which is 120% of the 1-year average. 301 stocks advanced, while 168 declined. Main Board short turnover declined -14.89% from yesterday, which is 113% of the 1-year average, as 17% of turnover was short turnover (remember Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). All factors were positive, with the growth factor and large caps outperforming the value factor and small caps. The top sectors were discretionary +2.69%, materials +2.37%, and energy +1.59%, while healthcare-0.89%, financials -0.46%, and utilities -0.38%. The top sub-sectors were retailing, energy, and software, while banks, healthcare equipment, and utilities were the worst. Southbound Stock Connect volumes were moderate/high as Mainland investors bought $485mm of Hong Kong stocks and ETFs, with Tencent a large net buy, Bank of China and CNOOC small net buys, while Meituan, Kuaishou, and China Mobile were small net sells.

Shanghai, Shenzhen, and Star Board gained +0.59%, +1.72%, and +1.39% on volume +4.37% from yesterday, which is 107% of the 1-year average. 4,462 stocks advanced, while 492 declined. All factors were positive, with the growth factor and small caps outpacing the value factor and large caps. Top sectors were tech +2.27%, communication +2.26%, and discretionary +1.34%, while financials -0.71%, staples -0.13% and healthcare -0.05%. The top sub-sectors were aerospace, internet, and software, while banking, food, and agriculture were the worst. Northbound Stock Connect volumes were moderate as foreign investors bought $322mm of Mainland stocks with Cits a small net buy, Wuliangye and iFlyTek moderate/large net buys while Sokon was a moderate net sell, Goertek, and Foxconn moderate/large net sells. CNY and the Asia dollar index both fell versus the US dollar. Treasury bonds were sold. Copper gained while steel fell.

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Last Night’s Performance

Last Night’s Exchange Raes, Prices, & Yields

  • CNY per USD 7.23 versus 7.22 yesterday
  • CNY per EUR 7.78 versus 7.82 yesterday
  • Yield on 10-Year Government Bond 2.30% versus 2.28% yesterday
  • Yield on 10-Year China Development Bank Bond 2.42% versus 2.41% yesterday
  • Copper Price +0.15%
  • Steel Price -0.83%

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