Hong Kong Rally Enjoys The Silence

Key News

Asian equity markets had a good day as Hong Kong outperformed while Mainland China and India were off.

The nattering nabobs of negativity are so focused on COVID’s spread in China they appear to be missing the Hong Kong market’s rebound. Top sectors in both China and Hong Kong were discretionary, staples, and communication! Notice how stable CNY has been? Its stability is a significant barometer of risk. Yes, our Chinese city mobility tracker shows declines in traffic and subway usage though several cities are showing stabilization. Interesting to see Hong Kong see a nice jump in volumes. The big news was the potential relaxation of inbound China quarantines occurring in early January to 0+3 (no initial quarantine followed by three days of hotel quarantine). Also, the CSRC stating its policy support for the real estate sector following the PBOC and State Council’s releases, and the WTO ruled in favor of China against the US in a trade dispute dating back to the previous administration. FedEx and Nike’s better than expected financial results were also a catalyst with the latter’s China revenue was off only -3% year over year.

Hong Kong’s most heavily traded were Tencent +4.12%, Meituan +6.89%, and Alibaba HK +4.09% as internet and EV had good days. Hong Kong shorts have been quiet during this rally which was true today as well though Alibaba HK’s short turnover accounted for 34% of total turnover. Mainland China was up all day though sold off into the close to close down though sectors were mixed, and foreign investors were net buyers to the tune of $403 million. Clean tech was off despite CATL (300750 CH) -1.18% announcing their German EV battery plant is up and running. We often have spoken about how onshore China and offshore China are two distinct markets. Onshore China, 95% owned by investors in China, reflects what the Chinese think about China. Offshore China (US ADRs and Hong Kong) is reflective of what foreign investors think about China. Over the last two years, we have favored onshore over offshore due to all of the negative news from foreign media weighing on sentiment. Now I might lean more toward offshore China.

The Hang Seng and Hang Seng Tech gained +2.71% and +4.61% respectively on volume up +46.45% from yesterday which is 82% of the 1-year average. 390 stocks advanced while 94 stocks declined. Main Board short turnover increased +52.95% from yesterday which is 72% of the 1-year average as 15% of turnover was short turnover. Value and growth factors were mixed as small caps edged out large caps. Top sectors were discretionary gaining+5%, communication finishing up +4.42%, and staples closing higher +3.84% while materials was the only down sector -0.53%. Top sub-sectors were software, media, and retailing while materials and food were the only down sub-sectors. Southbound Stock Connect volumes were light as Mainland investors bought $99 million of Hong Kong stocks with Kuaishou a small net buy, Tencent and Meituan were moderate net buys.

Shanghai, Shenzhen, and STAR Board eased -0.46%, -0.72%, and -1.07% on volume +14.65% from yesterday which is 70% of the 1-year average. 826 stocks advanced while 3,850 stocks declined. Value factors “outperformed” growth factors as large caps outpaced small caps. Top sectors were communication +1.62%, staples +1.5%, and discretionary +0.57% while energy -2.13%, materials -1.85%, and tech -1.33%. Top sub-sectors were chemical industry, education, and office supply while chemicals, fertilizer, and chemical fiber were among the worst. Northbound Stock Connect volumes were light as foreign investors bought $403 million of Mainland stocks. CNY was basically flat versus the US dollar at 6.98, Treasury bonds rallied again and copper gained +0.52%.

Major Chinese City Mobility Tracker

Some green shoots as several cities see stabilization/small rises though others are still in free fall.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.98 versus 6.98 yesterday
• CNY per EUR 7.41 versus 7.41 yesterday
• Yield on 10-Year Government Bond 2.85% versus 2.86% yesterday
• Yield on 10-Year China Development Bank Bond 3.01% versus 3.03% yesterday
• Copper Price +0.53% overnight