People & Policies Propel Markets Higher

Key News

Asian equities were mixed as Mainland China and Hong Kong outperformed, Taiwan and South Korea posted small gains, while Japan, India and Thailand posted declines of more than -1%.

Mainland China and Hong Kong rose on several positive developments following the conclusion of the “Dual Sessions” meetings of the 14th National People’s Congress. In light of the unfortunate Silicon Valley Bank meltdown, it is not surprising how little attention Western media is giving to these developments.

President Xi’s concluding speech was viewed positively as he emphasized self-reliance and “high-quality development,” with an emphasis on science, technology, and national defense. The Wall Street Journal is reporting that President Xi will speak with Ukrainian President Zelensky in advance of a trip to Russia.

Li Qiang took over from retiring Premier Li after having run Shanghai during a period of continued opening up. During tenure as the city’s party secretary, Shanghai saw the construction of Tesla’s gigafactory and the launch of the STAR Board. His press conference was pro-economy and pro-business, emphasizing the US-China relationship. Specifically, he stated that his focus will be people as “they care more about housing, employment, income, education, medical treatment, and the ecological environment. The second is to concentrate on promoting high-quality development. The third is to unswervingly deepen reform and opening up.” There will be challenges as the “world economic situation this year is not optimistic” as focus will be on stability, high-quality development, reform, and innovation.

Yi Gang will remain in his role as governor of the People’s Bank of China (PBOC), providing a strong signal that China’s reform and opening remains in place. Yi is a veteran banker with significant international experience and relationships, having joined the PBOC in 1997 and placed in his current role in March 2018. There was less turnover than anticipated in key roles as several senior economic advisors remained in their roles.

Mainland China and Hong Kong rose in response to these developments as the Asia dollar index and the renminbi CNY both gained +0.62% and +0.80%, respectively, as the US dollar fell and US Treasury yields are lower on the belief that the Fed could pause rate hikes following the failures of multiple banks. Hong Kong’s most heavily traded stocks by value were Tencent, which gained +3.98%, Alibaba, which gained +2.59%, and Meituan, which gained +1.26%, as Mainland investors were net buyers of Hong Kong stocks.

Bilibili gained +10.66% as Mainland investors were net buyers on the company’s first day in Southbound Stock Connect.

Hong Kong’s volume was quite high, amounting to 117% of the 1-year average, though off from Friday’s volume. The demise of Silicon Valley Bank (SVB) did affect several Hong Kong technology and biotech stocks with ties to the bank, though the exposure looks limited, as HSBC bought SVB’s UK arm.

Mainland China also focused on the positives coming from the conclusion of the Dual Sessions. I am diving into a white paper released titled “China’s Green Development in the New Era”. Shanghai stayed above technical support as SOE reforms and self-reliance were themes from the Dual Sessions. Tomorrow, the March lending rate will be announced, along with industrial production, retail sales, and fixed asset investment (FAI).

Confirmation bias is “the tendency to interpret new evidence as confirmation of one’s existing beliefs or theories.” Barron’s had a good interview with global shipper A.P. Moller-Maersk’s CEO Vincent Clerc, who should have a strong insight into the state of the global economy. The interview debunks or, at least challenges, ideas that tend to roll off the lips, such as deglobalization. It is a worthwhile read.

The Hang Seng and Hang Seng Tech indexes gained +1.95% and +2.89%, respectively, on volume that decreased -12.78% from Friday, which is 117% of the 1-year average. 333 stocks advanced, while 169 declined. Main Board short sale turnover declined -8.9% from Friday, which is 115% of the 1-year average, as 17% of turnover was short turnover. Value and growth factors were mixed as large caps outpaced small caps handily. The top-performing sectors were energy, which gained +4.32%, communication services, which gained +3.93%, and materials, which gained +3.13%. Meanwhile, real estate and healthcare were off -0.64% and -0.73%, respectively. The top-performing subsectors were telecom, energy, and software, with no negative sub-sectors. Southbound Stock Connect volumes were moderate as Mainland investors bought $43 million worth of Hong Kong stocks as Tencent was a moderate/strong net buy, and Meituan and Bilibili were small net buys.

Shanghai, Shenzhen, and the STAR Board gained +1.2%, +0.44%, and +0.54%, respectively, on volume that increased +3.99% from Friday, which is 93% of the 1-year average. 1,912 stocks advanced, while 2,751 stocks declined. Value factors outperformed growth factors as large caps outperformed small caps. All sectors were positive as communication gained +4.23%, energy gained +3.66%, and consumer staples gained +2.7%. The top-performing subsectors were telecom, precious metals, and software, while auto, power generation equipment, and electric power grid construction were among the worst. Northbound Stock Connect volumes were moderate as foreign investors bought $401 million worth of Mainland stocks overnight. CNY gained +0.43% versus the US dollar, closing at 6.88 CNY per USD, compared to Friday’s 6.95, Treasury bonds sold off, while Shanghai copper fell and steel gained.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

  • CNY per USD 6.85 versus 6.92 yesterday
  • CNY per EUR 7.34 versus 7.36 yesterday
  • Yield on 1-Day Government Bond 1.65% versus 1.55% yesterday
  • Yield on 10-Year Government Bond 2.87% versus 2.86% yesterday
  • Yield on 10-Year China Development Bank Bond 3.06% versus 3.06% yesterday
  • Copper Price -0.25% overnight
  • Steel Price +0.53% overnight