Mainland Rises On PBOC’s Currency Intervention

Key News

Asian equities had a mixed night on light volumes following an off day yesterday.

Media headlines are more negative than usual as COVID lockdowns in Chengdu and now Guiyang remain a focus. Worth noting Hong Kong had nearly 10k new COVID cases today though there is a continuing ease on travel restrictions. The August Caixin China Services PMI weekend release was 55 versus expectations of 54 and July’s 55.5. Seems impossible considering the headlines, right? The Caixin survey is conducted by IHS Markit which was recently acquired by S&P Dow Jones for data doubters. Headlines aren’t helping but the two-day move in Hong Kong internet stocks matches Friday’s ADR drawdown driven by the FT article that Tencent will divest from their stock investments like Meituan and Kuishou. It doesn’t matter that the company denied the article.

Tencent’s early investor Naspers is selling down its position to fund a buyback. Berkshire Hathaway trimming its BYD position has weighed on its stock. Tencent bought another 1.12 million shares overnight which they have been doing since August 19^th. Then there is the US $s relentless march higher as the Bloomberg JP Morgan Asia Dollar Index declined to another 52-week low. The PBOC looked to tap the brakes on the renminbi’s slide as it cut banks’ foreign currency reserve level by 2% as CNY declined to 6.95 versus the US $.

Hong Kong short sellers continue to press their bets against the media backdrop with 24% of all trading in Tencent was sold short, Meituan 19%, JD.com HK 31%, and Alibaba HK 12%. Remember this negativity weighs on Hong Kong, China’s offshore market/foreign investors’ definition of China, more so than the Shanghai and Shenzhen Stock Exchanges, the onshore market/domestic Chinese investors’ definition of China. Exhibit A: Today’s market action as the onshore market rallied. After the close, President Xi’s attendance at a conference focused on the economy and core technologies garnered headlines. Foreign investors sold a healthy -$560 million of Mainland stocks via Northbound Stock Connect following yesterday’s -$1.098 billion of Mainland stocks.

The Hang Seng and Hang Seng Tech closed -0.12% and +0.07% respectively after yesterday’s loss of -1.16% and -1.92% on volume -16.48% from yesterday which is 63% of the 1-year average. 283 stocks advanced while 187 stocks declined. Hong Kong short sale turnover declined -8.61% from yesterday which is 71% of the 1-year average as short sale turnover accounted for 19% of total turnover. Value factors outperformed growth factors as small caps outpaced large caps. Top sectors were real estate +4.39%, materials +1.7%, and tech +1.23% while communication -1.02%, industrials -0.37%, and staples -0.3%. Top sub-sectors were online education, e-cigarettes/tobacco, solar and semis while food/beverage, retailing, and auto dealers were among the worst. Southbound Stock Connect volumes were light as Mainland investors bought $120 million of Hong Kong stocks today with Tencent seeing moderate buying and Meituan seeing moderate/light selling.

Shanghai, Shenzhen, and STAR Board gained +1.36%, +1.21%, and +1.11% following yesterday’s -0.07%, -0.57%, and -1.04% on volume +13.54% which is 84% of the 1-year average. 3,128 stocks advanced while 1,334 stocks declined. Growth factors outperformed value factors as large caps outpaced small caps. Top sectors were materials +2.32%, real estate +2.1%, and discretionary +1.83% while healthcare and financials were off -0.27% and -0.09%. Top sub-sectors were solar, power generation, and petrochemical while biotech and several healthcare sub-sectors were among the worst. Northbound Stock Connect volumes were moderate/light as foreign investors sold -$560 million of Mainland stocks. Treasury bonds rallied, CNY fell to 6.95 versus the US $, and copper gained +1.47%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.96 versus 6.91 Friday
• CNY/EUR 6.91 versus 6.90 Friday
• Yield on 10-Year Government Bond 2.61% versus 2.62% Friday
• Yield on 10-Year China Development Bank Bond 2.78% versus 2.80% Friday
• Copper Price +1.47%