Mainland Stocks & CNY Stage Mid Day Reversal

Key News

Asian equity markets were mixed as China outperformed. In the words of a Mainland stock broker, it was “an exciting trading day”.

Onshore China (Shanghai/Shenzhen) outperformed offshore China (Hong Kong) in a fairly dramatic fashion today as a late-day rally reversed the Shanghai Composite from -1.53% to +1.53%, Shenzhen Composite -1.57% to +2.53%, and Hang Seng -2.34% to -0.78%. Yesterday we mentioned positives such as strong September auto sales, strong September loan data, and the recent revival of the Pledged Supplemental Lending (PSL), housing support, for the first time in two years. A potential catalyst for China’s outperformance was CNY mitigating an intra-day loss versus the US dollar as the PBOC appears to be defending the currency.

Treasury Secretary Yellen said yesterday the Fed would keep hiking, however, at the IMF meetings, the US must be getting an earful from other countries who must be paying the price of the US dollar’s strength. Recent Mainland media coverage of the commitment to zero COVID policy has weighed on sentiment especially in the offshore market, as post-Golden Week COVID flare-ups in thirty-one provinces reported 374 new COVID cases today.

Hong Kong short sellers have pressed their bets against this backdrop, knowing many investors are on the sidelines. Today 21% of Hong Kong’s Main Board trading was short as short sellers increased bets from yesterday as Meituan had 26% of its volume short today, Alibaba HK 19%, Tencent 10%, and JD.com HK 41%. Shorts did get run over by a rally in Xpeng HK +4.05% and Li Auto HK +6.84% though Nio HK was off -0.48%. Hard to know exactly what the catalyst was in today’s rally though it doesn’t appear to be China’s National Team (big institutional investors related to the government who like to buy low) as they tend to focus on mega caps while today’s rally had a distinct growth tilt to it.

Post-close, healthcare giant Wuxi AppTec reported that 2022 net income should increase 107% year over year. Foreign investors were net sellers of -$819 million worth of Mainland stocks today via Northbound Stock Connect. Tencent upped its buyback from the usual 1.2 million/1.3 million to 2.38 million shares today.

The Hang Seng and Hang Seng Tech fell -0.78% and -0.27% as volume increased +23.67% from yesterday, which is 91% of the 1-year average. 180 stocks advanced, while 293 declined. Main Board short selling activity increased +15.93% from yesterday, which is 110% of the 1-year average, as 21% of Main Board trading was short. Value and growth factors were mixed as large caps outpaced small caps. Top sectors were materials +0.87%, healthcare +0.74%, and tech +0.03% while real estate -2.09%, staples -1.53%, and utilities -0.91% were down. Top sub-sectors included auto parts, insurance, healthcare equipment, and tobacco/e-cigarettes, while consumer services, food, and real estate were among the worst performers. Southbound Stock Connect volumes were moderate as Mainland investors were net sellers of Hong Kong stocks amounting to -$51 million, as Tencent was a strong net buy, Meituan was a small net buy, Li Auto was a moderate net buy, and Wuxi Biologics was a small net buy.

Shanghai, Shenzhen, and STAR Board gained +1.53%, +2.53%, and +3.6%, respectively, on volume that increased +26.27% from yesterday, which is 72% of the 1-year average. 3,727 stocks advanced, while 851 stocks declined. Growth factors outperformed value factors as small caps outpaced large caps. The top performing sectors were technology, which gained +4.15%, industrials, which gained +3.28%, and discretionary, which gained +2.12%. Meanwhile, staples were the only negative sector down -0.34%. The top-performing subsectors were power generation, construction, and computer hardware, while airports, restaurants, and chemical fiber were among the worst. Northbound Stock Connect volumes were moderate as foreign investors sold -$819 million of Mainland stocks. Treasury bonds rallied, CNY was off -0.03% versus the US $ to 7.17, and copper was +0.08%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.17 versus 7.17 yesterday
• CNY per EUR 6.96 versus 6.97 on yesterday
• Yield on 10-Year Government Bond 2.74% versus 2.74% on yesterday
• Yield on 10-Year China Development Bank Bond 2.90% versus 2.91% on yesterday
• Copper Price +0.08% on yesterday