Markets Higher As Investors Ignore Nena’s 99 Red Balloons

Key News

Asian equities were largely lower overnight as China outperformed. Apologies for the 1980s hit song reference!

Hong Kong-listed internet stocks rallied after US-listed Chinese stocks deflated Friday on political rhetoric. Hong Kong’s most heavily traded stocks by value were Tencent, which gained +0.83%, Meituan, which pulled a James Bond, gaining +0.07%, Alibaba, which fell -0.1% versus its US listing, which fell -4.43% on Friday,, which fell -1.43%, outperforming its US listing, which fell -5.7%, and Baidu, which gained +1.92% on another Ernie Bot announcement, versus its US listing, which fell -6.13%.

Mainland investors were buyers today via Southbound Stock Connect as the Hang Seng Index sits just above the 21,000 level. Hong Kong’s Main Board saw short sale turnover increase to 17% of total turnover, which has up ticked during the recent correction/pullback. Consumer staples were the best performing in Hong Kong, up +1.97% (offshore China along with US China ADRs/primarily owned investors outside of China) and Mainland China, up +2.16% (onshore China/primarily owned by investors in China) markets.

Political headlines tend to rattle offshore China much more so than onshore China as the tit-for-tat UFO allegations and headlines weigh on offshore markets far more than onshore. Having watched the onshore market for ten years, it really does march to its own drum, providing a low correlation to global equity portfolios. Today’s market action is a good example as the Shanghai Composite gained +0.72% and Shenzhen gained +1.19% on strong volume, as investors focused on strong economic data, released after Friday’s close. Foreign investors were net buyers of onshore China via Northbound Stock Connect.

It was interesting that the real estate sector was up in Hong Kong and down in China, as the Link REIT (823 H) fell -12.82% and was then suspended after announcing the issuance of stock. We have been wary of real estate equities as the companies issue more stock to bolster their balance sheet, favoring their bonds to capture the rebound.

Chinese investors noticed Pinduoduo’s multiple ads for its Temu E-Commerce service during last night’s Super Bowl.

Last week, we spent time in Washington DC, meeting with several members of Congress and their staff. In a nutshell, at this time China is only viewed through a national defense lens, with little consideration of how intertwined the two economies are, let alone how well many US companies are doing in China. Just shows why diplomats should be getting on planes to meet with one another. China’s government mentioned Janet Yellen’s planned visit, which hopefully allows things to cool off.

Last Thursday, MSCI provided its pro-forma for the month-end index rebalance. For EM investors, China’s weight is 33.5%, though numerically China represents 719 of the index’s 1,382 stocks.

The Hang Seng and Hang Seng Tech indexes split to close -0.12% and +0.29%, respectively, on volume that decreased -6.43% from Friday, which is 89% of the 1-year average. 267 stocks advanced while 204 stocks declined. Main Board short turnover fell -4.18% from Friday, which is 89% of the 1-year average as 17% of turnover was short turnover. Growth and value factors were mixed, while large caps outpaced small caps. The top-performing sectors were consumer staples, which gained +1.97%, communication services, which gained +1%, and materials, which gained +0.95%, while utilities fell -0.24%, financials fell -0.32%, and technology fell -0.59%. The top-performing subsectors were food/beverages/tobacco, consumer durables and consumer services, while media, food staples and technical hardware were among the worst. Southbound Stock Connect volumes were light as Mainland investors bought $405 million worth of Hong Kong stocks as Tencent, Meituan, and Kuaishou were all small net buys.

Shanghai, Shenzhen, and the STAR Board were mixed, closing +0.72%, +1.19%, and -0.05%, on volume that increased +10.42% from Friday, which is 108% of the 1-year average. 3,281 stocks advanced while 1,295 stocks declined. Growth and value factors were mixed as small caps edged out large caps slightly. Top sectors were consumer staples, which gained +2.16%, industrials, which gained +1.35%, and communication services, which gained +0.84%, while real estate fell -0.73%, energy fell -0.88%, and utilities fell -0.91%. The top-performing subsectors were construction machinery, chemicals, and heavy machinery, while marine, banking, and agriculture were among the worst. Northbound Stock Connect volumes were moderate as foreign investors bought $101 million worth of Mainland stocks. CNY fell -0.16% versus the US dollar to 6.82 CNY per USD, the Treasury curve flattened, while copper and steel were both down.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

  • CNY per USD 6.82 versus 6.81 yesterday
  • CNY per EUR 7.30 versus 7.27 yesterday
  • Yield on 1-Day Government Bond 1.70% versus 1.60% yesterday
  • Yield on 10-Year Government Bond 2.89% versus 2.90% yesterday
  • Yield on 10-Year China Development Bank Bond 3.06% versus 3.06% yesterday
  • Copper Price -0.48% overnight
  • Steel Price -0.67% overnight