PBOC Talks Down Renminbi As Hong Kong Shorts Press Their Bets

Key News

Asian equities were mixed, as Japan, Taiwan, and South Korea closed on a positive note while the remainder of the region was off. China and Hong Kong opened higher but slid lower across the trading day to close down small.

After the local close, Reuters is reporting that the PBOC has told banks to prepare to sell US dollars to support the renminbi. In China, the PBOC is affectionately known as Big Momma. Due to its massive foreign currency reserves, you don’t want to be on the wrong side of the PBOC, which explains CNY’s rally of +0.89% to 7.13 from yesterday’s 7.20. If the Fed keeps hiking rates, it will be hard to keep the CNY or any other currencies appreciating versus the US dollar.

Hong Kong internet stocks were mixed today with Tencent -1.24%, Alibaba HK +2.88%, Meituan +0.83%, and JD.com HK +0.5%. Hong Kong short turnover was lower day-over-day but still high in aggregate as Meituan had 42% of volume short, Tencent 21%, Alibaba HK 20%, and JD.com HK 33%. On the positive, Bilibili announced it would make Hong Kong it’s primary listing on October 3^rd, which should allow for Southbound Stock Connect eligibility by early November.

Southbound Stock Connect is closed today, tomorrow, and next week for China’s Golden Week holiday. Bloomberg has an article on the PCAOB’s work with the Big Four US accounting firm’s Chinese auditors, which is a positive to me that the audit work is happening. The Mainland was off but not as much as offshore China/Hong Kong as foreign investors bought $480mm of Mainland stocks today in a positive sign. After Monday’s announcement on support for hospital equipment upgrades, healthcare was the best performer.

The Hang Seng and Hang Seng Tech were off -0.49% and -1.24% on volume -15.69% from yesterday, which is 73% of the 1-year average. 114 stocks advanced while 386 declined. Main Board short turnover declined by -17.64% from yesterday, 91% of the 1-year average as 21% of all trading was short. Growth and value factors were mixed as large caps outperformed small caps. Consumer discretionary +0.81% and energy +0.38% were the only positive sectors as real estate -4.13%, tech -3.29% and industrials -1.93%. The top sub-sectors were from healthcare and energy, such as healthcare products and coal, while tech hardware and auto parts were among the worst. Southbound Stock Connect was closed today.

Shanghai, Shenzhen, and STAR Board were mixed -0.13%, -0.05%, and +0.55% on volume -3.61% from yesterday, which is 63% of the 1-year average. 1,595 stocks advanced while 2,943 stocks declined. All sectors were positive, with top sectors healthcare +3.5%, materials +2.77%, and energy +2.69%, while real estate lagged +0.06%. Top sub-sectors include medical devices, coal mining, lithium mining, and precious metals, while marine shipping, restaurants, and airports were among the worst. Foreign investors bought $480mm of Mainland stocks via Northbound Stock Connect on moderate volumes. Treasury bonds were off, CNY gained +0.89% versus the US dollar closing at 7.13, and copper gained nearly 1%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 7.14 versus 7.24 yesterday
• CNY/EUR 6.94 versus 6.91 yesterday
• Yield on 10-Year Government Bond 2.75% versus 2.74% yesterday
• Yield on 10-Year China Development Bank Bond 2.89% versus 2.87% yesterday
• Copper Price +0.96% overnight