Hong Kong Sees Strong Inflows From Mainland Investors, Week In Review

Week in Review

• Asian equities had a choppy week of trading as Mainland investors poured into Hong Kong stocks, awaiting the results of the 20^th National Party Congress (NPC), which has been taking place all week.
• Electric vehicle maker BYD announced strong preliminary Q3 results on Tuesday, indicating a net profit increase of over 300%.
• US-listed China internet stocks were down significantly on Wednesday on little news as some cited new COVID outbreaks in China as a reason for the downdraft.
• Healthcare stocks had a strong week on optimism about medical equipment and hospital upgrade policies coming out of the 20^th NPC.

Key News

Asian equities ended an off-week weak lower though a few equity markets managed small gains, including India, Malaysia, and Indonesia.

The Asia dollar index hit another 52-week low as Japan’s yen fell -0.93%, the Thai Baht fell -0.56%, and the South Korean won fell -0.52%. Meanwhile, China’s Renminbi (CNY) fell -0.41%.

With the Party Congress taking place, this was not just a no-bad news week but a no-news week. Hong Kong did well, better than the indices appear. Internet stocks were mixed overnight as Hong Kong’s most heavily traded stocks by value were Tencent, which gained +0.17%, Alibaba HK, which fell -0.43%, Meituan, which gained +0.57%, Kuaishou, which fell -8.15%, Wuxi Biologics, which fell -1.29%, NetEase, which fell -4%, and JD.com, which gained +0.8%. I don’t know if Thursday will end up being the market bottom, but it sure felt like it.

There was very little media coverage of the strong inflow into Hong Kong from Mainland investors via Southbound Stock Connect this week as Tencent saw another strong day of net buying. It makes you wonder what these investors know that maybe we don’t. I would guess there is an understanding that post-Party Congress, China’s government will focus on jump-starting the economy, as indicated by the numerous mentions of the economy in President Xi’s speech. Shorts might have noticed this as well, as their volume was light on a light-volume day in general.

One of the major misconceptions about China is that there is a lack of good data. No different than here in the US or Europe, the mobile phone is a reconnaissance device as “free” apps’ monetization model is selling your data. This is also true in China! For the right price, you can pay to find out what people are buying on e-commerce websites, what video games are being downloaded, etc. A firm that sells this data has said that NetEase’s game revenues appear weak as we head into Q3 earnings. There are some who don’t believe this firm has a good track record on such predictions, though, so only time will tell.

Mainland China was mixed on little news other than Jiangsu Haili Wind Power Equipment’s announcement of a major offshore wind plant, which lifted its stock by +6.32% along with the broader green technology space. Foreign investors sold a healthy -$1.2 billion worth of Mainland stocks as inflows turned negative in September and October. I’m told that active emerging market equity funds are seeing redemptions, which could explain the outflow.

The Hang Seng and Hang Seng Tech Indexes were off -0.42% and -0.62%, respectively, on volume that fell -25.88% from yesterday, which is 76% of the 1-year average. 297 stocks advanced, while 177 declined. Main Board short selling turnover declined -23.63% overnight, which is 96% of the 1-year average, as 22% of turnover was short. The top-performing sectors were utilities, which gained +1.89%, industrials, which gained +1.67%, and energy, which gained +1.3%. Meanwhile, communication services fell -0.8%, consumer staples fell -0.46%, and consumer discretionary fell -0.46%. The top-performing subsectors were professional services, media, oil and gas, healthcare equipment, and semiconductors, while durables/apparel, insurance, and food/beverages/tobacco were among the worst. Southbound Stock Connect volumes were light though Mainland investors bought $434 million worth of Hong Kong stocks overnight.

Shanghai, Shenzhen, and the STAR Board were mixed, closing +0.13%, -0.24%, and +0.42%, respectively, as volume declined -10.5% from yesterday, which is 72% of the 1-year average. 2,023 stocks advanced, while 2,407 stocks declined. Growth factors outperformed value factors as large caps edged out small caps by a small margin. The top performing sectors were utilities, which gained +0.91%, energy, which gained +0.78%, and industrials, which gained +0.68%. Meanwhile, staples fell -1.29%, communication services fell -1.19%, and materials fell -0.91%. The top-performing subsectors were power generation, motorcycles, and education. Meanwhile, chemicals, office supplies, and restaurants were among the worst. Northbound Stock Connect volumes were light as foreign investors sold -$1.2 billion worth of Mainland stocks. Treasury bonds were off, CNY declined -0.45% versus the US dollar to 7.24, and copper gained +1.45%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.23 versus 7.21 yesterday
• CNY per EUR 7.10 versus 7.09 yesterday
• Yield on 1-Day Government Bond 1.28% versus 1.22% yesterday
• Yield on 10-Year Government Bond 2.73% versus 2.72% yesterday
• Yield on 10-Year China Development Bank Bond 2.88% versus 2.87% yesterday
• Copper Price +1.45% overnight