LPR Cut & WHO Approval Of China Vaccine Catalyze Markets, Week In Review

Week in Review

• It was yet another choppy week of trading for Asian equities, which mirrored the US. However, both Hong Kong and Mainland China were up for the week.
• China released key economic indicators for the month of April on Monday, showing declines in all categories except for fixed asset investment as Shanghai’s lockdown weighed on economic activity last month. Retail sales were driven lower by a fall of -22.7% in restaurant sales, though online retail sales have rebounded +5.2% year-to-date as of the end of April.
• Earnings season kicked off this week for internet companies. Tencent Music Entertainment reported mixed results, JD beat expectations on the top line, and Tencent reported flat revenue growth year-over-year, coming short of analyst expectations.
• Vice Premier Liu He attended a key government meeting on Tuesday titled “Promoting the Sustainable and Healthy Development of the Digital Economy,” which led to a short-lived rally in Hong Kong-listed internet stocks.
• In this week’s video update, Dr. Xiaolin Chen discusses four reasons why she believes China’s internet sector could be looking brighter.

Friday’s Key News

Asian equities were mostly higher overnight as only Malaysia declined, and by only -0.02%.

Both Mainland China and Hong Kong had a strong night as investors cheered the PBOC’s decision to cut the 5-year loan prime rate (LPR) to 4.45% from 4.6%, lower than the expected 4.55%. This is the rate that banks use for mortgages. Housing prices and apartment sales have been significantly down year-to-date. Which prompted the dovish move.

All sectors in both Mainland China and Hong Kong were positive today though, interestingly, real estate was a bottom performer in both markets, despite the rate cut. But, Western headlines are saying the market went up because of the rate cut. While the rate cut was a factor in last night’s positive price action, other catalysts were at play, including Premier Li’s speech from yesterday. Furthermore, Hong Kong internet stocks had to play catch up with their US-listed counterparts.

Premier Li’s speech voiced support for internet companies and foreign listings. The mention of foreign listings is an indication that a solution to the Holding Foreign Companies Accountable Act (HFCAA) could be coming soon. This is purely speculative on my part, but a weekend announcement could be coming in the next few weeks. Fingers crossed!

Another catalyst for the China market’s strong performance overnight was the World Health Organization’s (WHO) approval of CanSino Biologics’ single-dose vaccine, which sent the company’s Hong Kong-listed shares up by +9.78% and its Mainland-listed shares up by +12.14%. Meanwhile, health care was a strong performer in both markets.

It is entirely too bad that volumes were not a bit higher, which would have indicated more conviction on the current rebound.

Foreign investors bought a healthy +$2.1 billion worth of Mainland stocks today, raising the net inflow for the week to $2.3 billion.

Electric vehicle (EV) maker NIO’s Hong Kong share class gained +9.55% overnight and will be added to the Hang Seng Tech Index on June 13^th.

The Hang Seng Index and Hang Seng Tech Index gained +1.30% and +4.74%, respectively, on volume that was +1.28% higher than yesterday, which is 85% of the 1-year average. There were 416 advancing stocks and only 72 declining stocks. Hong Kong’s short sale volume declined -by 7.89% from yesterday, which is 96% of the 1-year average. Meanwhile, growth factors outpaced value factors while large caps outperformed small caps. All sectors were in the green as health care gained +5.36%, consumer discretionary gained +4.43%, and tech gained +4.1%. Interestingly, tobacco, e-cigarettes, and liquor stocks were the best performing sub-sectors. However, internet stocks dominated the most heavily traded list as Tencent gained +3.53%, Meituan gained +4.53%, Alibaba HK gained +5.64%, and JD.com HK gained +5.91%. Southbound Stock Connect trading was balanced between buys and sells as Tencent and Meituan were net sales by a small margin.

Shanghai, Shenzhen, and the STAR Board gained +1.6%, +1.59%, and +0.87%, respectively, on volume that increased +14.42% from yesterday, which is 85% of the 1-year average. There were 3,037 advancing stocks and 1,255 declining stocks. Growth factors outperformed value factors except for momentum names while small caps outperformed large caps by a small margin. All sectors were in the green as energy gained +4.68%, consumer staples gained +4.37%, and health care gained +4.06%. Domestic and foreign favorites were at the top of the most heavily traded list as broker East Money Information gained +3.07%, liquor stocks Kweichow Moutai and Wuliangye Yibin gained 2.51% and +5.83%, respectively, and EV battery maker CATL gained +1.89%. Coal was one of the best performing sub-sectors along with liquor stocks. Northbound Stock Connect volumes were modest though we saw net buying of $2.1 billion by foreign investors. 10-year Treasury bonds eased, CNY appreciated +0.55% versus the US dollar, and copper gained +0.6%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.68 versus 6.71 yesterday
• CNY/EUR 7.06 versus 7.11 yesterday
• Yield on 1-Day Government Bond 1.31% versus 1.35% yesterday
• Yield on 10-Year Government Bond 2.79% versus 2.78% yesterday
• Yield on 10-Year China Development Bank Bond 3.00% versus 2.99% yesterday
• Copper Price +0.60% overnight