Economic & Diplomatic Progress Goes Unnoticed By Foreign Investors

Key News

Asian equities started the week mixed but mostly lower overnight following a down week on Wall Street.

China’s improving economic data and significant US diplomatic overtures have so far gone largely unnoticed by foreign investors. This is partly since global markets appear to be in a risk-off phase amid “higher for longer” rate speak from central bankers and US large-cap technology’s unwinding from highs earlier this year.

Some brokers upgraded their China GDP targets over the weekend, though most remain in the below 5% range, which is less than the official target of 5.5%. China’s better-than-expected data releases over the past two weeks have lifted expectations for the economy. However, foreign investors remain on the sidelines as the data has not been enough to pull them back into the market. Domestic flows have accounted for a net $50 billion of inflows into Mainland stocks while foreign flows are flat since February and only a slightly positive $14 billion for the year.

Meanwhile, there was some positive momentum on the diplomatic front over the weekend. Jake Sullivan noted “candid” talks on Ukraine and Taiwan with Chinese Foreign Minister Wang Yi in Malta. Meanwhile, China’s vice president will meet with Blinken today at the UN General Assembly in New York. Also, both US and China-based airlines plan to significantly increase the number of flights between the two countries next month.

Growth and value factors were both lower overnight as most sectors were in the red. However, health care was a bright spot in both Hong Kong and Mainland China. The sector is seeing a reprieve from an anti-graft campaign that is likely to end soon.

President Xi spoke of encouraging technological innovation during his tour of Zhejiang province over the weekend. He also emphasized green practices in manufacturing and, most importantly, parts of the digital economy that are beginning to become internationally competitive. International market penetration among China’s internet players has stepped up recently, despite geopolitical tensions, with Pinduoduo’s launch of its Temu app in the US.

The Hang Seng and Hang Seng Tech indexes both closed lower by -1.82% and -2.72%, respectively, overnight on volume that decreased -27% from Friday. Mainland investors bought a net $770 million worth of Hong Kong stocks overnight via Southbound Stock Connect. The top-performing sectors overnight were Health Care, which gained +0.93%, Energy, which fell -0.74%, and Utilities, which fell -0.75%. Meanwhile, the worst-performing sectors were Real Estate, which fell -3.92%, Communication Services, which fell -2.61%, and Consumer Discretionary, which fell -2.48%.

Shanghai, Shenzhen, and the STAR Board all closed lower by -0.54%, -0.47%, and -0.94%, respectively, on volume that decreased -6% from Friday. Foreign investors sold a net -$1 billion worth of Mainland stocks overnight via Northbound Stock Connect. The top-performing sectors were Health care, which gained +1.21%, Energy, which fell -0.28%, Utilities, which fell -0.30%, and Consumer Discretionary, which fell -0.42%. Meanwhile, the worst-performing sectors were Real Estate, which fell -2.26%, Information Technology, which fell -1.22%, and Financials, which fell -1.10%.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.31 versus 7.30 yesterday
• CNY per EUR 7.76 versus 7.77 yesterday
• Yield on 1-Day Government Bond 1.29% versus 1.34% yesterday
• Yield on 10-Year Government Bond 2.70% versus 2.68% yesterday
• Yield on 10-Year China Development Bank Bond 2.78% versus 2.76% yesterday
• Copper Price -0.21% overnight
• Steel Price -0.78% overnight