June Caixin PMI Beats Expectations, Week In Review

Week in Review

• Asian equity performance was mixed this week. Hong Kong and Mainland China have led gains in Asia for the week and for the quarter.
• Internet stocks were higher this week on positive news regarding the relaxation of China’s COVID Zero policy and a positive earnings release from travel booking site Trip.com on Tuesday.
• Tianqi Lithium, a materials giant that has been listed publicly in Mainland China for many years, announced that it will pursue a secondary listing in Hong Kong, where it plans to raise up to $1.7 billion.
• In a sign that the services economy is rebounding in China, the official June non-manufacturing PMI, released Thursday, came in at 54.7 versus an estimated 50.5 and May’s 47.8.

Key News

Southeast Asian equities managed small gains while northern Asia was off as Taiwan fell -3.26%.

Taiwan’s weakness comes as semiconductors continue to see pain. Taiwan Semiconductor fell -4.73% on very high volume. Just as semiconductor demand begins to fall and the latest cycle peaks, Congress is preparing to give over $50 billion to US semiconductor companies.

For the week Hong Kong, Mainland China, and Malaysia were the only equity markets to post positive results. Hong Kong was closed today for the 25^th anniversary of the UK’s handover of Hong Kong to China. It is worth noting that Hong Kong’s COVID case count was 3,000 today, another indication the zero COVID/lives first policy has been tweaked.

It was a quiet night overall other than the release of the June Caixin Manufacturing purchasing managers’ index (PMI). The PMI came in at 51.7 versus expectations of 50.2 and May’s 48.1, led by output as new orders are rising. PMIs are diffusion indexes and readings above 50 indicate expansion while readings below 50 indicate contraction. The Caixin PMI is called the “private PMI” as the survey is performed by IHS Markit, which recently merged with S&P Dow Jones.

Mainland markets were off a touch as the clean tech ecosystem outperformed. Lithium plays outperformed, led by Tianqi Lithium, which gained +6.57%, and Ganfeng Lithium, which gained +5.56%. Meanwhile, battery maker CATL fell -2.13% and BYD fell -1.29%. June electric vehicle sales data were released and Nio, Xpeng, and Li Auto all showed strong year-over-year percentage increases in output volume. For those in the US, enjoy the three-day weekend!

Did anyone read about Indian President Modi’s phone call with Putin? It is funny how western media failed to report on it. India has been notorious of late for failing to follow the other members of the “Quad” in sanctioning Russia and restricting the purchase of its oil and gas. India’s leaders have decided that the economic impact of stopping Russian imports would be too great.

Hong Kong’s stock market was closed overnight.

The Shanghai, Shenzhen, and the STAR Board were off -0.32%, -0.21%, and -1.5%, respectively, on volumes that decreased by -9.49% from yesterday, which is 97% of the 1-year average. 1,756 stocks advanced while 2,656 declined. Value factors outperformed growth factors while large caps outperformed small caps. Utilities and materials were the only positive sectors, up +2.43% and +1%, respectively, while communication fell -1.45%, tech fell -1.14%, and discretionary fell -1.04%. Lithium and clean power were the top sub-sectors while online education and travel players were among the worst. Northbound Stock Connect was closed today. Treasury bonds gained while CNY fell slightly versus the US dollar and copper was hit, falling -2.51% in price.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.71 versus 6.70 yesterday
• CNY/EUR 6.98 versus 7.01 yesterday
• Yield on 1-Day Government Bond 1.32% versus 1.40% yesterday
• Yield on 10-Year Government Bond 2.83% versus 2.82% yesterday
• Yield on 10-Year China Development Bank Bond 3.06% versus 3.05% yesterday
• Copper Price -2.51% overnight