PBOC’s Night Moves Lift Stocks

Key News

Asian markets were decidedly mixed as investors debate whether Russia will invade as southern Asian markets outperformed versus northern Asian markets’ weakness. Mainland China had a strong day while India did a 180 after yesterday’s steep sell-off, rebounding +3%. We often point out that Mainland China stocks are predominantly owned by investors in China thus reflecting what they think of China. Hong Kong stocks are predominantly owned by foreign investors thus reflecting what they think of China. Today is a great example of how different these views can be.

Investors in China bought stocks after the PBOC injected RMB 100B into the financial system via the medium-term lending facility (MLF) though it kept that lending rate the same. MLF interest rate was cut back on January 17^th. Banks borrow from the PBOC via MLF, which allows the central bank to push or pull cash into or out of the system as banks will increase lending if they have more cash on their books. Investors in China recognize that the PBOC is easing!

China’s economy is slowing as foreign export demand slackens though the policymakers are proactively moving. Foreign investors’ reaction to the PBOC? No reaction. Find any articles about the PBOC move in western media? Me neither! The Mainland has been enduring a vicious value/growth stock rotation though today we saw a rebound in many growth sectors/stocks. The growth geared STAR Board +2.88% while the Shenzhen +1.35% outpaced Shanghai +0.5% though volume was off -4.15% from yesterday, which is only 79% of the 1-year average. 

Healthcare was the best performing sector in both China +4.66% and Hong Kong +5.98% on Pfizer’s deal to manufacture Paxlovid with Chinese drug manufacturer Porton. Also helping was WuXi AppTec reporting strong preliminary 2021 results with net income expected to rise +72% year over year. Healthcare stocks have been hit hard in the value/growth rotation though, hopefully, we can put in a base. 

Another victim of the value/growth rotation has been the clean technology sector, which includes the EV ecosystem, wind, and solar. Today’s Mainland market action was a who’s who of such growth stocks outperforming at the expense of value stocks as financials and energy were off. Hong Kong is dealing with a significant coronavirus outbreak which is likely dampening investor sentiment with the potential for large-scale quarantines. Hong Kong-listed internet stocks were off though not significantly. Foreign investors sold -$558mm of mainland stocks via Northbound Stock Connect. Chinese Treasury bonds were flat while the renminbi appreciated versus the US $ and copper eased -0.51%. 

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.34 versus 6.35 yesterday
• CNY/EUR 7.20 versus 7.19 yesterday
• Yield on 10-Year Government Bond 2.80% versus 2.80% yesterday
• Yield on 10-Year China Development Bank Bond 3.02% versus 3.03% yesterday
• Copper Price -0.53% overnight