Bullard Bites The Bulls As Mester Messes With Risk On Sentiment, Week In Review

Week in Review

• It was another choppy week of trading for Asian equities as investors assess their risk tolerance considering the potential for two or more rate hikes from the US Fed and geopolitical uncertainty since Balloon-gate.
• The International Energy Agency (IEA) raised its global oil demand forecast by 500,000 barrels, citing increased demand from China’s reopening.
• Investors also awaited earnings releases next week from Alibaba, Baidu, and NetEase as earnings season is set to kick off.
• On Thursday, Biden confirmed that the three additional objects shot down in US airspace did not come from China and had been for civilian use.

Key News

Asian equities ended the week with a thud as the US dollar index gained +0.61%, the Asia Dollar Index fell -0.33%, and CNY fell -0.3%. The US dollar bounce came after US Fed officials Mester and Bullard advocated for a 50bps rate hike in March.

Volumes in Hong Kong were very light as US Fed rate hike fears led to a risk-off session. Growth stocks were lower despite US-listed Chinese stocks’ outperformance yesterday. Hong Kong’s most heavily traded stocks by value were Tencent, which fell -2.3%, Alibaba, which fell -2.6% with earnings coming next Thursday, Meituan which fell -2.76%, Wuxi Biologics, which fell -2.07%, JD.com, which fell -0.94%, and Baidu, which fell -4.59% with earnings coming next Wednesday. Value sectors and stocks held up better in both Hong Kong and Mainland China, as we avoided a total rout from a breadth perspective.

President Biden said that he will call President Xi about the balloon incident, which hopefully leads to a meeting between US and Chinese officials at the Munich Security Council, which started today.

Technology and healthcare-focused investment bank China Renaissance’s stock plunged as their CEO has been reported missing as a company official’s previous job led to a regulatory investigation. I would guess he will provide insight on the former employee to regulators and hopefully puts the issue behind the firm.

The People’s Bank of China (PBOC) injected the most cash and liquidity ever overnight to counter the effects of tax payments that have pulled liquidity out of the banking system and raised short-term interest rates. However, the loan prime rate (LPR) is not expected to be changed Sunday.

The recent AI/Chat Bot frenzy is deflating and weighing on Mainland sentiment, though foreign investors bought the dip via Northbound Stock Connect overnight. For the week foreign investors bought a net $1.2 billion worth of Mainland stocks.

The China Securities Regulatory Commission (CSRC), China’s SEC, provided updated rules on listing requirements, which may allow for more IPOs and therefore more supply and competition for stocks currently listed. Companies with sensitive technology will receive more scrutiny on listing outside of China, though the release provides another implicit approval of the variable interest entity (VIE) structure.

EV battery maker CATL (300750 CH) was China’s most heavily traded stock overnight, falling -5.19% on talks of lowering battery prices and government scrutiny of their Ford deal. This is just another example of the businesspeople getting along just fine! It is worth noting that a Chinese company listed on the STAR Board listed shares in Switzerland today. Political tensions create voids and opportunities that get filled. One must assume that that IPO would have been in the US a few years ago. Chinese companies still list abroad, though they may increasingly do so elsewhere, which does not bode well for US capital markets.

The Hang Seng and Hang Seng Tech indexes fell -1.28% and -2.51%, respectively, on volume that decreased -26.98% from yesterday, which is 71% of the 1-year average. 143 stocks advanced while 334 stocks fell. Main Board short sale turnover fell -28.05% from yesterday, which is 66% of the 1-year average, as 16% of turnover was short turnover. Value factors outperformed growth factors as small caps “outpaced” large caps. The top-performing sectors were energy, which gained +0.72%, materials, which gained +0.44%, and industrials, which gained +0.08%. Meanwhile, technology fell -2.72%, communication fell -2.47%, and consumer discretionary fell -1.92%. The top-performing subsectors were food, consumer staples, energy, and healthcare equipment, while technical hardware, software, and retail were among the worst-performing. Southbound Stock Connect volumes were light as Mainland investors sold -$13 million worth of Hong Kong stocks. Tencent selling was moderate/strong and Meituan was a small net sell via Southbound Stock Connect.

Shanghai, Shenzhen, and the STAR Board fell -0.77%, -1.16%, and -1.87%, respectively, on volume that decreased -23.28% from yesterday, which is 101% of the 1-year average. 1,808 stocks advanced while 2,768 stocks declined. Value factors outperformed growth factors as large caps outpaced small caps. Energy was the only positive sector, gaining +0.98%, while communication services fell -3.73%, technology fell -3.59%, and industrials fell -2.12%. The top-performing subsectors were chemical industry, coal, and chemical fiber, while telecom, software, and computer hardware were among the worst. Northbound Stock Connect volumes were moderate/light as foreign investors bought $294 million worth of Mainland stocks. CNY fell -0.34% versus the US dollar to 6.88, Treasury bonds were flat, while both cooper and steel rallied.

Upcoming Webinar

Join us Thursday, March 2nd at 11 am EST for our webinar:

Putting Volatility to Work: Growth and Income From ETF Covered Calls

Click here to register

Major Chinese City Mobility Tracker

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.87 versus 6.86 yesterday
• CNY per EUR 7.33 versus 7.33 yesterday
• Yield on 1-Day Government Bond 1.81% versus 1.60% yesterday
• Yield on 10-Year Government Bond 2.89% versus 2.89% yesterday
• Yield on 10-Year China Development Bank Bond 3.06% versus 3.06% yesterday
• Copper Price +1.05% overnight
• Steel Price +1.24% overnight