Pfizer’s Paxlovid Approved In China, State Council Emphasizes Domestic Consumption

Key News

Asian equities were higher following yesterday’s lighter-than-anticipated US CPI print (sarcastically, only 7.1%!) though volumes were light in advance of today’s Fed hike and tomorrow’s global central bank hiking.

There was little news overnight as Hong Kong’s most heavily traded stocks by value were Tencent, which gained +2.07%, Meituan, which gained +2.02%, and Alibaba, which gained +1.3%. Short volumes were light in an indication that the pain trade is higher for China equities. Mainland investors were net sellers of Hong Kong stocks to the tune of -$489 million, which is a rare event.

Mainland China was mixed on light volumes as covid rules fall to the wayside. COVID is running rampant in China, especially in Beijing as evidenced by the very low traffic. Asymptomatic cases will no longer be reported. Thus far, we’ve not seen any walk back, though it could happen if hospitals are overwhelmed.

Mainland media noted that Pfizer’s Paxlovid has been approved in China, along with Genuine Biotech’s Azvudine. Zhejiang Huahai Pharmaceutical (600521 CH) will make the drug for Pfizer. I am proud to say that we are one of the eight largest US asset managers to own the stock.

The Central Committee and State Council announced the release “…of a strategic plan for expanding domestic consumption demand”. The report noted consumption accounts for 50% of GDP, making it the second largest consumer economy globally as 24.5% of retail sales took place online in 2021. Remember, we have the Central Economic Work Conference (CEWC), the big economic meeting, that will very likely articulate specific policies to support domestic consumption. Remember that export-driven manufacturing is slowing as global demand slows. Domestic consumption must rise to offset this weakness, which explains the policy pivot on both zero COVID and real estate, which have been headwinds to consumption.

E-commerce marketing firm China Skinny noted a McKinsey report titled “2023 McKinsey China Consumer Report: A Time of Resilience”. More details to come, but, in a nutshell, there has been $2 trillion worth of Chinese household savings in the first nine months of 2022. These excess savings could be unleased in the months to come as China’s households’ worries about being locked down ease. At our annual conference, Alibaba’s Head of Investor Relations noted the “green shoots” coming in domestic consumption. McKinsey also noted that by 2025 there will be another 71 million households in China’s high-income bracket. That is a great report from McKinsey that bears a deeper dive.

The Hang Seng and Hang Seng Tech gained +0.39% and +0.34%, respectively, on volume that increased +16.04% from yesterday, which is 110% of the 1-year average. 248 stocks advanced while 243 stocks declined. Main Board short turnover increased +16.08% from yesterday, which is 83% of the 1-year average as 13% of total turnover was short turnover. Growth and value factors were mixed as large caps outpaced small caps. The top performing sectors were communication, which gained +2.35%, consumer staples, which gained +1.5%, and materials, which gained +1.44%, while energy was off -1.13%. The top-performing subsectors were household products, software, and pharmaceuticals, while semiconductors, healthcare equipment, and insurance were among the worst. Southbound Stock Connect volumes were moderate/light as Mainland investors sold -$489 million worth of Hong Kong stocks as Tencent was a small net sell, while Meituan and recent Connect addition Shandong Xinhua were small net adds.

Shanghai, Shenzhen, and the STAR Board diverged to close +0.01%, -0.09%, and -0.51%, respectively, on volume that decreased -0.96% from yesterday, which is 86% of the 1-year average. 1,822 stocks advanced, while 2,773 stocks declined. Value factors outperformed growth, while large caps outpaced small caps. The top performing sectors were consumer staples, which gained +2.21%, financials, which gained +0.98%, and energy, which gained +0.85%, while healthcare and real estate were off -0.35% and -0.45%, respectively. The top-performing subsectors were restaurants, chemicals, and education, while telecommunications, pharmaceuticals, and diversified financials were among the worst. Northbound Stock Connect volumes were light as foreign investors bought $237 million worth of Mainland stocks with a small preference for Shenzhen growth stocks over Shanghai value stocks. CNY gained slightly versus the US dollar, closing at 6.95, Treasury bonds rallied, and copper gained +0.93%.

Major City Mobility Tracker

We are seeing a pullback in both metro usage and congestion as COVID spreads.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.95 versus 6.95 yesterday
• CNY per EUR 7.40 versus 7.39 yesterday
• Yield on 1-Day Government Bond 1.03% versus 1.08% yesterday
• Yield on 10-Year Government Bond 2.87% versus 2.90% yesterday
• Yield on 10-Year China Development Bank Bond 3.00% versus 3.06% yesterday
• Copper Price +0.93%