Government Economic Support Revealed At Politburo, Week In Review

Week in Review

• Geopolitical concerns weighed on China equity markets this week as China’s incrementally improving economic data has yet to translate fully into stock performance.
• President Xi and Ukraine’s Zelensky held a consequential phone call on Wednesday. Both leaders had positive comments about the call.
• BYD sold 440,000 electric vehicles (EVs) in Q1 and its stock saw gains on Wednesday, helping reverse the downdraft in EV ecosystem stocks.
• In this week’s video update, Xiabing takes us to Beijing’s hutongs to discover the latest fashion trends in China.

Key News

Asian equities ended a mixed week largely higher except for Singapore, Malaysia, Thailand, and Indonesia.

Investors were in a good mood following US mega-tech earnings along with the fact that virtually all equity markets globally are closed Monday, including Mainland China and Hong Kong, the former will be closed until Thursday.

Western media has completely ignored today’s Politburo, a meeting of very senior government officials, which was focused on the economy. This is job security for us, though the lack of coverage is strange as it appears to only have been reported in Bloomberg News. Meanwhile, did you read anything about India and Russia’s defense ministers meeting today and recommitting their defense partnership? Inconvenient truths are easier to ignore, I suppose.

However, Mainland China markets did not ignore it as Shanghai, Shenzhen, and the STAR Board gained +1.14%, +1.41%, and +1.86%, respectively. The meeting noted that “economic development showed a positive trend of recovery, and the economic operation achieved a good start.” However, the recovery is not as strong as it should be: “…economic operation is mainly restorative, the internal driving force is not strong, the demand is still insufficient…”. They did not sugar coat it, did they? What is the government going to do about it? Policymakers spoke to continued opening up, reform, eliminating risks etc. Specifically, they stated:

• “Self-reliance and self-improvement in science and technology”
• “Consolidate and expand the development advantages of new energy vehicles, and accelerate the construction of charging piles”
• “The development of general artificial intelligence”
• “A proactive fiscal policy must be strengthened to improve efficiency, and a prudent monetary policy must be precise and powerful to form a joint force to expand demand.”
• “…necessary to increase the income of urban and rural residents, improve the consumption environment…”
• “Prevent and resolve risks in key areas,” which was linked to the financial sector

Communication services and information technology were the top-performing sectors in Mainland China, gaining +5.24% and +2.13%, respectively, as subsectors including AI, software, and semiconductors all had a strong day. Remember that today is just the first day of the meeting. There is chatter that state-owned enterprise (SOE) reform will be articulated further. I would also highlight domestic consumption being an area of emphasis, as we do not have specific policies in place, though that will come.

Another global bank raised their 2023 GDP target to over 6%! Remember that Mainland/onshore China is 90% owned by investors in China, which is why we had such a strong move. Hong Kong/offshore China was up, but not nearly as much, as foreign investor sentiment is all doom and gloom.

The Hang Seng Index gained +0.27%, though was unable to break above the 20,000 level, closing at 19,894. The Hang Seng Tech Index gained +1.02% as Hong Kong’s most heavily traded stocks were Tencent, which fell -0.17%, Alibaba, which gained +0.31%, Ping An Insurance, which gained +0.89%, BYD, which was flat, AIA, which fell -0.29%, and Meituan, which fell -0.75%. CNY and the Asia Dollar Index managed a small gain versus the US dollar.

The Hang Seng and Hang Seng Tech indexes gained +0.27% and +1.02%, respectively, on volume that increased +4.56% from yesterday, which is 84% of the 1-year average. 310 stocks advanced, while 170 declined. Main Board short turnover declined -24.86% from yesterday, which is 68% of the 1-year average, as 14% of turnover was short turnover. Value factors outperformed growth factors, while large caps outperformed small caps. The top-performing sectors were energy, which gained +1.42%, industrials, which gained +0.83%, and technology, which gained +0.6%. Meanwhile, utilities fell -0.99% and healthcare fell -0.72%. The top-performing subsectors were media, semiconductors, and energy. Meanwhile, healthcare equipment, household products, and utilities were among the worst. Southbound Stock Connect volumes were light as Mainland investors bought $85 million worth of Hong Kong stocks as Tencent, Meituan, and Kuiashou were all net bought by Mainland investors.

Shanghai, Shenzhen, and the STAR Board gained +1.14%, +1.41%, and +1.86%, respectively, on volume that increased +6.97% from yesterday, which is 122% of the 1-year average. 3,684 stocks advanced, while 1,043 declined. Value factors outpaced growth factors, while large caps outperformed small caps. The top-performing sectors were communication services, which gained +2.05%, technology, which gained +2.02%, and energy, which gained +1.82%. Meanwhile, utilities was the only down sector, falling -0.02%. The top-performing subsectors were internet, cultural media, and software. Meanwhile, power generation equipment, gas, and motorcycles were among the worst. Northbound Stock Connect volumes were high as Shanghai-listed stocks were net sold and Shenzhen stocks were net bought though China Merchants Bank was a small net sell, Ping An Insurance and Kweichow Moutai were small net buys. CNY and the Asia Dollar Index managed a small gain versus the US dollar. Treasury bonds gained. Shanghai copper gained somewhat while steel was off -1.21%.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.92 versus 6.92 yesterday
• CNY per EUR 7.60 versus 7.64 yesterday
• Yield on 10-Year Government Bond 2.78% versus 2.79% yesterday
• Yield on 10-Year China Development Bank Bond 2.94% versus 2.96% yesterday
• Copper Price +0.19% overnight
• Steel Price -1.21% overnight