Growth Stocks Lead Asia Lower

Key News

Asian equity markets were down with an emphasis on growth stocks in contradiction with Treasury Secretary Yellen’s comments that markets are functioning well.

It will be interesting to see if today’s Fed speakers can maintain the hardline on raising interest rates as Fed policies wreak havoc on global markets. The US dollar hit another 52-week high as the Asia currency index hit another 52-week low. CNY fell -0.82% versus the US dollar to 7.23 though the PBOC is stepping up efforts to mitigate the currency weakness. Not helping was Apple’s tepid forecast which weighed on regional suppliers and growth stocks. We noticed an Apple supplier mentioning this a few weeks ago though should have highlighted it more than we did. Hong Kong listed property developer CIFI Holdings -32% after missing a bond payment, which weighed on real estate stocks, though the macro/risk off environment is the main culprit.

Mainland investors bought a healthy $754 million of Hong Kong stocks today. Tencent continues to buy back its stock since mid-August. Unfortunately, today is the last day of Southbound Stock Connect trading in advance of next week’s Golden Week holiday. Hong Kong short sellers stepped on the gas as 22% of Hong Kong’s Main Board trading was short with Hong Kong internet stocks off on no news. Interestingly, a local broker said the PCAOB audit reviews is an overhang which I view as a positive considering the companies are all audited by the Big Four US accounting firms. I don’t see why passing an audit review should be a problem. A local derivatives broker seems in good spirits as Hong Kong’s structured product/warrant market implodes as indices cut through price levels. On the positive, they mentioned this is feeling like a blowout bottom. Let’s hope so.

I’ve been doing some traveling overseas. Typical overseas client conversation: If the US government wants to fight inflation why wouldn’t they remove tariffs on Chinese goods? I don’t have a good answer. If the White House wants to promote clean energy, why would they ban Chinese solar panels? Same answer. If the White House wants to promote EVs, why would they mandate 100% all US made which is impossible? Ditto. There is an argument that the US government is pursuing contradictory monetary and fiscal policies similar to the UK.

We hope all our friends in Florida are safe due to Hurricane Ian.

The Hang Seng and Hang Seng Tech fell -3.41% and -3.85% on volume +11.51% from yesterday which is 86% of the 1-year average. 22 stocks advanced while 491 fell. Main Board short turnover increased +21.74% from yesterday which is 111% of the 1-year average as 22% of trading was short trading. Value and growth factors were mixed while large caps “outperformed” small caps. All sectors were negative with healthcare -1.72%, while materials -5.65%, real estate -5.05%, and tech -4.20%. No sub-sector managed to stay green as household products -0.82% fell the least while auto and semis were among the worst. Southbound Stock Connect volumes were moderate as Mainland investors bought a strong $754 million of Hong Kong stocks today with Tencent, Meituan, and Wuxi Biologics all net buys.

Shanghai, Shenzhen, and STAR Board fell -1.05%, -2.57%, and -2.07% respectively on volume -2.55% from yesterday which is 65% of the 1-year average. 528 stocks advanced while 4,086 stocks declined. Value factors outperformed growth while large caps outperformed small caps. All sectors were negative with energy falling the least -1.37% while materials -4.69%, tech -3.68%, and industrials -3.65%. Top sub-sectors were medical products, banks, and insurance while lithium mining, rare earth, and cobalt were among the worst. Northbound Stock Connect volumes were moderate as foreign investors sold -$530 million of Mainland stocks. Treasury bonds sold off, CNY fell -0.82% to 7.23, and copper was off.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 7.24 versus 7.17 yesterday
• CNY/EUR 6.91 versus 6.91 yesterday
• Yield on 10-Year Government Bond 2.74% versus 2.71% yesterday
• Yield on 10-Year China Development Bank Bond 2.87% versus 2.84% yesterday
• Copper Price -0.27% overnight