Diplomatic Green Shoots, Foreign Freak-Out & Mainland Shoulder Shrug

Key News

Asian equities were mixed overnight as Hong Kong underperformed following yesterday’s June economic release.

Tencent was down -4.59% on an interview with early investors Prosus stating it will sell 2 to 3% annually, weighing on internet plays. Hong Kong real estate was the worst sector, down -3.96%, as distressed property stocks fell after Evergrande finally announced financial results for the last two years. The company lost $95.7 billion in 2021 and $14.8 billion in 2022, though by stating its results, the Hong Kong shares could start trading again and lead to a restructuring.

Mainland China investors shrugged their shoulders as Mainland real estate was the best sector gaining +0.54% in another foreign freak-out. With no strong catalysts, Hong Kong traders took short-term profits as the lackluster/modest data led several economists to lower their 2023 GDP targets. Mainland investors were not nearly as negative as foreign investors, which posted small losses in comparison. There were positives as the Ministry of Commerce outlined thirteen measures to “promote home consumption, support home furnishing enterprises…and support residents in purchasing green home appliances…”. Mainland-listed Gree Electric Appliances gained +0.98% though surprisingly, Midea Group was down -0.68%.

Chatter that PBOC will lower the bank’s reserve requirement ratio in Q3. John Kerry met with China’s top diplomat Wang Yi and China’s climate head Xie Zhenhua as climate is an area of mutual interest. Reuters is reporting that 100-year-old Henry Kissinger met with Chinese defense minister Li Shangfu in Beijing. US semiconductor companies will meet with the White House to press their case limiting US export curbs. US-China diplomatic green shoots continue! CNY was off a little versus the US dollar. The Mainland market is back to key support levels, with Shanghai near 3,200 and Shenzhen near 2,000, while the Hang Seng held above 19,000.

The Hang Seng and Hang Seng Tech fell -2.05% and -2.35% on turnover +4.16% from yesterday, which is 84% of the 1-year average. 97 stocks advanced, while 397 declined. Main Board short turnover increased +6.24% from yesterday, which is 78% of the 1-year average, as 15% of turnover was short turnover. Value and growth factors were mixed as large caps “outperformed” small caps. All sectors were negative, with real estate -3.96%, communication -3.84%, and staples -2.38%. The top sub-sectors were auto and healthcare equipment, while software, retailing, and food were the worst. Southbound Stock Connect volumes were light/moderate as Mainland investors bought +$150 million of Hong Kong stocks, with Tencent a large net sell, and Meituan and China Construction Bank were small net buys.

Shanghai, Shenzhen, and STAR Board fell -0.37%, -0.26%, and -0.49% on turnover -3.26% from yesterday, which is 78% of the 1-year average. 2,527 stocks advanced, while 2,009 stocks declined. The value factor outperformed the growth factor as small caps outperformed large caps. The top sectors were real estate +0.62%, discretionary +0.46%, and materials +0.28%, while tech -0.99%, communication -0.8%, and energy -0.68%. The top sub-sectors were auto parts, fertilizer, and household products, while computer hardware, communication equipment, and software were the worst. Northbound Stock Connect volumes were moderate/light as foreign investors sold a healthy -$1.221 billion, with Kweichow Moutai a large net sell, Foxconn a small net buy, and Wuxi AppTec a small/moderate net buy. CNY eased against the US dollar while the Asia dollar index gained. Treasury bonds rallied while copper and steel fell.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.17 versus 7.16 yesterday
• CNY per EUR 8.07 versus 8.05 yesterday
• Yield on 10-Year Government Bond 2.62% versus 2.63% yesterday
• Yield on 10-Year China Development Bank Bond 2.75% versus 2.76% yesterday
• Copper Price -1.07% overnight
• Steel Price -0.11% overnight