Bank Of Japan Bazookas Risk Assets

Key News

Asian equities were poised for a weak day following Monday’s US stock market drop. The weak start went from bad to worse mid-morning as the end of the Bank of Japan’s bond-buying bonanza sent risk assets south, impacting growth stocks as investors dumped anything Japanese investors might hold. The timing of the BOJ’s decision is awful as volumes got thin, fast following last Friday as many institutional managers have closed the books for the year.

Hong Kong internet stocks had a rough day for no reason other than a risk-off day, with Hong Kong’s most heavily traded Tencent -3.43%, Alibaba HK -3.455%, Meituan -1.85%, and Kuaishou -4.84%. Mainland China was off but not as much as HK, as CNY appreciated a little versus the US dollar.

The PBOC did not lower the Loan Prime Rate as expected though they did inject a healthy amount of liquidity into the system. Western media is hammering the new Covid policy though there is little to no coverage of the Central Economic Work Conference (CEWC), which in China is still front-page news. The big local brokerage firms are putting out their analysis of the pro-consumption release. Australia is sending a trade team to China while President Xi spoke with German President Steinmeier today. Our Post-Party Congress Policy Pivot on the Big Three (US-China political, Zero Covid and Real Estate) is playing out though we need to get through the covid surge. Hong Kong short sellers remain quiet, indicating the reopening rally has further legs. I suspect investors will tiptoe back to the China ADR space with the PCAOB news removing their delisting risk. China is looking good as we head into 2023 though we have global macro turbulence to ride out.

The Hang Seng and Hang Seng Tech fell -1.33% and -3.12% on volume -4.38% from yesterday, which is 77% of the 1-year average. 83 stocks advanced, while 417 stocks declined. Main Board short turnover increased +3.2% from yesterday, 66% of the 1-year average, as 15% of turnover was short turnover. Value and growth factors were down, while large caps outpaced small caps. All sectors were down, with real estate -5.38%, communication -3.62%, and tech -2.85%. The top sub-sectors were insurance, household products, and transport, while software, real estate, and auto were among the worst. Southbound Stock Connect was light as Mainland investors sold -$266mm of Hong Kong stocks, with Meituan a small sale while Tencent and Kuaishou were moderate sells.

Shanghai, Shenzhen, and STAR Board fell -1.07%, -1.2%, and -0.36% on volume -15.4% from yesterday, which is 2,061 stocks advanced while 2,503 stocks declined. Value factors outperformed growth factors as small caps outperformed large caps. All sectors were down, with staples -3.21%, real estate -2.65%, and communication -1.77%. Top sub-sectors were power generation equipment, diversified financials, and auto parts, while education, liquor, and airport were among the worst. Northbound Stock Connect volumes were light as foreign investors bought $165mm of Mainland stocks with a preference for Shanghai-listed stocks. CNY gained +0.15% versus the US dollar to 6.96, Treasury bonds were off very slightly, and copper pulled an inverse Don Mattingly/Michael Jordan -0.23%.

Major Chinese Mobility Tracker

Though traffic in Beijing saw an uptick along with subway usage in Chengdu, a down trend remains in place.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.97 versus 6.97 yesterday
• CNY per EUR 7.40 versus 7.40 yesterday
• Yield on 10-Year Government Bond 2.87% versus 2.86% yesterday
• Yield on 10-Year China Development Bank Bond 3.03% versus 3.02% yesterday
• Copper Price -0.23% overnight