Asian equities were mixed overnight as China markets lagged the rest of the continent as an area near Beijing was shut down partially. China’s dynamic COVID policy will be fully on display this week as the district has instructed schools to provide instruction online only.
China internet stocks were mostly lower overnight. Meituan led declines as Tencent has unloaded shares in the company as part of a special dividend to investors. These names were driven significantly higher last week on earnings momentum, so it makes sense that they saw some pressure overnight. Baidu reports tomorrow.
Saturday’s Wall Street Journal had an article on US Trade Representative Katharine Tai meeting with China’s Commerce Minister Wang Wentao at the Asia-Pacific Economic Cooperation meetings in Bangkok. Let’s be clear that it takes two to tango. The purpose of the article was not to paint a poor picture, but, as Phil Rizzuto would say: “holy cow!”. According to the article, the meeting was “Ms. Tai’s first face-to-face meeting with a senior Chinese official since taking office in 2021…”. That doesn’t seem to be as much of a rush as it should be, as an FYI, tariffs are inflationary, which appears to be a concern for every American. The article mentions that China failed to meet its commitments under Trump’s phase one trade deal. China considers the goods manufactured and sold in China by US manufacturers to be US imports versus the US definition, which says that imports must be something shipped in on a boat. If you take the Chinese definition and add it to the US’ exports (stuff put on boats), there is no trade deficit.
The world’s first inhalable COVID vaccine from CanSino Biologics has been inoculated in Shanghai, Jiangsu, Tianjin, Zhejiang, and Beijing, and will soon be launched in Hainan. This is good news from a COVID control perspective. We should see Zero COVID continue to be relaxed gradually. Sadly, China reported its first COVID-related death in six months, which weighed on today’s sentiment.
China’s government seldom “pulls the Band-Aid” on major policy changes, preferring to test and, subsequently, scale up new policies. Such a test is currently taking place in Hong Kong, where visitors from abroad no longer need to quarantine. This has enabled the semi-autonomous city to host the Global Financial Leaders’ Investment Summit on November 1-3 and the famous Rugby Sevens tournament on November 4-6. Hong Kong is now living with the virus, having recorded 6,000 new daily cases, on average, over the past month. Shijiazhuang, the area near Beijing that was partially shut down over the weekend, will be another key test case for the new policy.
The People’s Bank of China (PBOC), China’s central bank, left the one and five-year loan prime rates unchanged overnight at 3.65% and 4.30%, respectively. China is continuing its accommodative monetary policy, while the US Fed is likely to hike again at its December meeting.
KraneShares China Major City Mobility Tracker
Over the past few days, we have seen a drop in traffic in Shanghai, while the other major cities we track have seen traffic trend higher.
The Hang Seng and Hang Seng Tech Indexes closed -1.87% and -2.96%, respectively. The top performing sectors in Hong Kong were utilities, energy, financials, and industrials as value factors outpaced growth factors.
Shanghai, Shenzhen, and the STAR Board closed -0.39%, -0.14%, and +0.05%, respectively. The top performing sectors on the Mainland were utilities, materials, industrials, and real estate.
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.17 versus 7.12 Friday
- CNY per EUR 7.34 versus 7.37 Friday
- Yield on 1-Day Government Bond 1.10% versus 1.20% Friday
- Yield on 10-Year Government Bond 2.82% versus 2.83% Friday
- Yield on 10-Year China Development Bank Bond 2.93% versus 2.96% Friday
- Copper Price -1.12% overnight