Geopolitics Continues To Weigh On Markets

Key News

Asian equities were mixed overnight as the Philippines outperformed while Thailand and Pakistan were closed for Eid al-Fitr.

Both Hong Kong and Mainland China were down overnight, though for different reasons. Hong Kong was off on light volumes, closing just below the 20,000 level as the most heavily traded stocks by value were Tencent, which fell -1.2%, Alibaba, which fell -1.19%, Meituan, which fell -0.07%, Semiconductor Manufacturing (SMIC), which fell -1.08%, and BYD, which gained +3.61% after announcing a new model of electric vehicle (EV).

Hong Kong-listed internet stocks did not fall as much as their US-listed counterparts did on Friday, a small positive for internet markets. Hong Kong short sellers pressed their bets overnight as 21% of Main Board turnover was short. This figure has only exceeded 20% once previously in 2023, on February 1^st. One Hang Seng Tech ETF had 72% of volume as short volume along with a Hang Seng Enterprise ETF, which had 83% of volume being short volume though individual stocks did not see similar spikes. So, shorts are pressing their bets that investors are not buying Hong Kong stocks, based on light volumes.

Mainland China was off following Friday’s fall as local investors have become very concerned about US restrictions on technology investments. The Biden Administration’s “small yard, high fence” policy is apt to focus on new private equity investments, though investors appear to be shooting first and ask questions later. The tech emphasis has hit recently-popular and strong-performing themes such as semiconductors, AI, and the STAR Board, which explains an element of the elevator down this past Friday.

Based on the research reports that I read over the weekend, I am not the only one bewildered by China’s incrementally improving economic data coupled with weak stock performance. The geopolitical overhang has weighed on offshore China, i.e. Hong Kong and US-listed China stocks as the last two days saw geopolitical concerns spilling over into onshore China.

Author and columnist Thomas Friedman wrote about his recent trip to China in a New York Times
NYT
opinion piece. He discusses the lack of diplomatic communication between the US and China, despite the strong economic ties between the two countries. This is an issue that we have highlighted repeatedly. Hopefully, the two sides do what businesspeople are doing, which is getting on airplanes and meeting with one another. The recent pullback in onshore China should get attention from policy makers.

The Hang Seng and Hang Seng Tech indexes fell -0.58% and -0.22%, respectively, on volume that declined -9.12% from Friday, which is 80% of the 1-year average. 183 stocks advanced while 302 stocks declined. Main Board short turnover increased +15.53% from Friday, which is 100% of the 1-year average, as 21% of turnover was short turnover. Growth factors outpaced value factors as small caps outperformed large caps. The top-performing sectors were utilities, which gained +0.85%, healthcare, which gained +0.34%, and energy, which gained +0.06%. Meanwhile, real estate fell -1.49%, materials fell -1.43%, and technology fell -1.3%. The top-performing subsectors were food, autos, and utilities. Meanwhile, consumer durables, materials, and technical hardware were among the worst. Southbound Stock Connect volumes were light as Mainland investors bought $24 million worth of Hong Kong stocks today as Tencent was a small net sell, Meituan was a very small net buy, and Kuaishou was a small net buy.

Shanghai, Shenzhen, and the STAR Board fell -0.78%, -0.82%, and -1.83%, respectively, on volume that declined -10.48% from Friday, which is 118% of the 1-year average. 1,788 stocks advanced while 2,869 declined. Value factors outperformed growth factors, while large caps outperformed small caps. Communication and utilities were the only positive sectors, gaining +1.43% and +0.34%, respectively, while materials fell -1.88%, technology fell -1.65%, and consumer staples fell -1.56%. The top-performing subsectors were soft drinks, internet, and education. Meanwhile, precious metals, construction equipment, and semiconductors were the worst-performing. Northbound Stock Connect volumes were moderate/high as foreign investors sold $555 million worth of Mainland stocks. CNY fell -0.02% versus the US dollar to close at 6.89 CNY per USD.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.89 versus 6.89 Friday
• CNY per EUR 7.59 versus 7.57 Friday
• Yield on 1-Day Government Bond 1.45% versus 1.50% Friday
• Yield on 10-Year Government Bond 2.82% versus 2.82% Friday
• Yield on 10-Year China Development Bank Bond 3.00% versus 3.01% Friday
• Copper Price -0.62%
• Steel Price -2.85%