Internet Outperforms As CPI Drives Asia Markets Lower

Key News

Asian equities were mostly lower as Hong Kong underperformed on volume that increased overnight.

The US CPI print indicated that inflation calmed down slightly from December, but not nearly enough for the Fed to pause on rate hikes. The still-high print was expected, but nonetheless weighed on risk assets globally, including in Mainland China and Hong Kong.

The market is pricing in yet two more rate hikes by the US Fed. This may explain the lack of a cut to the medium-term lending facility (MLF) in China overnight.

The International Energy Agency (IEA) raised its global oil demand forecast for 2023 by 500,000 barrels per day on China reopening.

Per the National Security Council, the three unidentified objects downed since last Friday are believed to have served commercial purposes.

Hong Kong was one of the worst performers in Asia overnight as most of the increase in volume was due to selling. Internet names outperformed with Baidu and Xiaomi leading. Meanwhile, consumer discretionary and real estate saw more profit taking and declines from stock issuance, respectively.

iFlyTek Co. was up 7.20%, outperforming on the announcement of a Chat GPT-like AI search feature. This is the latest in a multitude of China names riding the AI-wave.

Carrefour has been closing stores in China in what appears to be a downsizing of its retail business in the nation. Many are saying that E-Commerce is the culprit, but China’s consumer behavior is also to blame. Carrefour, which has been operating in China for over a decade, did not anticipate the loyalty of Chinese consumers to their local street markets for fresh groceries such as produce. China is a difficult market to crack, but exceedingly worthwhile for global corporations.

Speaking of difficult markets to crack, Pinduoduo entered the US market with a splash through its multiple Super Bowl ads this past Sunday. Evidently, the company is heavily subsidizing its US entry, offering rock-bottom prices with the slogan “Shop like a billionaire.” They are making a big bet on US consumers, an important global market.

Internet earnings season kicks off next week with Baidu, Alibaba, and NetEase all reporting. Q4 is likely to be a mixed bag as many in China became infected with COVID or curbed spending and activity for fear of being infected. We should see positives from reopening in Q1 releases. Beware of bearishness upon Q4 releases.

Many have wondered whether reopening will decrease the need for online shopping in China. This is far from the truth as reopening means consumer confidence will rebound, while the entrenchment of E-Commerce (30% of all retail sales) means that this will benefit E-Commerce companies.

The Hang Seng and Hang Seng Tech indexes closed lower by -1.43% and -0.97%, respectively, on volume that increased +15% from yesterday. Mainland investors were net buyers of $753 million worth of Hong Kong stocks overnight on weakness. Among the best performing sectors were internet and technology. Meanwhile, the worst-performing sectors included real estate and health care.

Shanghai, Shenzhen, and the STAR Board were mixed to close -0.39%, -0.06%, and 0.15%, respectively, on volume that increased +3% from yesterday. Foreign investors sold a net $272 million worth of Mainland stocks overnight. Among the best performing sectors on the Mainland overnight were communications and consumer staples. Meanwhile, health care, consumer discretionary, and financials were among the worst performing.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.84 versus 6.83 yesterday
• CNY per EUR 7.33 versus 7.33 yesterday
• Yield on 1-Day Government Bond 1.60% versus 1.65% yesterday
• Yield on 10-Year Government Bond 2.89% versus 2.89% yesterday
• Yield on 10-Year China Development Bank Bond 3.06% versus 3.05% yesterday
• Copper Price +0.48% overnight