Chinese Tourism Stocks Rally

Key News

Asian equities were mixed overnight on light volumes.

COVID’s spread in China is garnering more attention than I would have thought from Western media. 100% COVID is spreading through China as some city’s close schools while our Mobility Tracker shows the drop off in traffic and subway usage. While Mainland China has been off the last few days, the market hasn’t collapsed. In fact, since the end of October to yesterday’s close, the S&P 500 is down -1.01%, Shanghai Composite gained +11.54%, and Shenzhen Composite finished up +10.10% in US dollars. While COVID concerns weigh on Mainland sentiment, worth pointing out today’s best performing sub-sectors in China today were airport industry +2.07% and catering tourism industry +1.87%. Who else didn’t care? Foreign investors bought $268 million of Mainland stocks today via Southbound Stock Connect.

Premier Li and the State Council along with the CSRC put out statements following the Central Economic Work Conference (CEWC) pro-consumption push. Hong Kong rebounded today with healthcare the top sector +1.83%. Reuters reported this morning that BioNTech’s vaccine has been shipped to China to be used on foreigners living in China. No doubt this will be expanded in the future to China’s population. Hong Kong’s most heavily traded were Tencent +0.52%, Alibaba HK +0.48%, and Meituan -0.74% with internet names largely higher, less so JD.com HK -0.64%.

Last Friday’s index rebalances of the Nasdaq 100 dropped Baidu and NetEase from the index as their market cap is no longer among the top 100 largest companies listed. I’m told that the FAANG index dropped Alibaba and Baidu at their last rebalance. An ETF provider dropped Tencent, Baidu, and Weibo from their EM and China ETFs at the end of October! Of course, we had a pension plan announce they will cut their China position in half a month ago. Having been in the passive/index business twenty-two years, I’ve seen these moves all the time which are contrarian! History doesn’t repeat itself, but it does rhyme! S&P 500 adds Yahoo in 1999… tech crashes. Financials become +20% of S&P 500 in 2008… financial crisis. Hang Seng adds tech stocks to the Hang Seng Index in 2020… China tech crashes. Growth stocks become nearly 30% of S&P 500… growth crashes/value rallies. US energy stocks become “non investable” in 2021… energy stocks are the best performer in 2022. Chinese property developers become 50% of Asia High Yield Index… property market crashes. Indices delete China stocks from their indices…

The Hang Seng and Hang Seng Tech gained +0.34% and +0.71% on volume down -28.02% from yesterday which is 56% of the 1-year average. 281 stocks advanced while 168 declined. Main Board short turnover -28.39% from yesterday which is 47% of the 1-year average as 15% of turnover was short turnover. Growth factors outperformed value factors as large caps outperformed small caps. Top sectors were healthcare +1.83%, materials +1.44%, and financials +0.70% while real estate fell -0.16%. Top sub-sectors were pharma, telecom services, and consumer services while household products, auto, and utilities were among the worst. Southbound Stock Connect volumes were light as Mainland investors bought $44 million of Hong Kong stocks with Kuaishou a moderate sell, Tencent and Meituan small net buys.

Shanghai, Shenzhen, and STAR Board were off -0.17%, -0.47% and -1.25% respectively on volume down -10.43% from yesterday which is 47% of the 1-year average. 1,272 stocks advanced while 3,347 stocks declined. Value factors outperformed growth factors while large caps outperformed small caps. Top sectors were staples +1.07%, communication +0.93%, and financials +0.23% while tech -1.4%, industrials -0.64%, and energy -0.53%. Top sub-sectors were airports, catering tourism industry, and liquor, while motorcycles, auto parts, and semis were among the worst. Northbound Stock Connect volumes were light as foreign investors bought $268 million of Mainland stocks. CNY fell versus the US dollar -0.26% to 6.98, Treasury bonds rallied, and copper gained +0.74%.

Major Chinese City Mobility Tracker

A few green shoots but we are still in the thick of China’s COVID spike.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.98 versus 6.97 yesterday
• CNY per EUR 7.41 versus 7.40 yesterday
• Yield on 10-Year Government Bond 2.86% versus 2.87% yesterday
• Yield on 10-Year China Development Bank Bond 3.03% versus 3.03% yesterday
• Copper Price +0.74% overnight