Ping An Posts Profits

Key News

Asian equities were higher, Australia and Thailand fell on light volumes.

Fairly quiet as we head toward China’s Labor Day holiday that has Mainland/onshore China closed Monday, Tuesday, and Wednesday and Hong Kong/offshore China closed Monday. Financial earnings took center stage as insurance giant Ping An rose on high volumes +9.02% in Hong Kong (2318 HK) and +10% in China (601318 CH) driven by a 48.9% rise in net income. Insurance peer AIA (1299 HK) rose +1.61% post good financial results, though remember AIA is a Hong Kong domiciled company thus it is part of MSCI developed market indices and not MSCI EM nor China.

The widely held China Merchants Bank was off -5.18% in Hong Kong (3968 HK) and -3.52% in China (600036 CH) on mixed results while China Life Insurance beat, rising +5.14% in Hong Kong (2628 HK) and +6.45% in China (601628 CH). Hong Kong listed internet stocks were largely lower though not significantly with Alibaba HK -1.8%, Tencent -0.92%, Meituan +0.68%, JD.com HK -0.15%, Baidu HK -1.7%, and Kuaishou +1.18%. Chinese liquor company ZJLD Group (6979 HK) had its initial public offering (IPO) today but fell -17.93%. Nio HK was off on weak weekly sales.

Southbound Stock Connect volumes were light as Mainland investors focused on their vacation. The light Hong Kong volumes led short volume to increase to 19% of total turnover with short volume concentrated in Hong Kong listed ETFs versus individual stocks. Similar to Hong Kong, Mainland China was led higher by value sectors/stocks with healthcare gaining +1.84% on chatter of a COVID spike. Another day of profit taking in highflying ChatGPT, AI, and semis with momentum falling, geopolitical concerns on semis, and some talking down retail investors enthusiasm for the space. Fairly quiet! March industrial profits declined -19.2% year over year though the data point was a non-factor thus as our trader/friend Dave says “if market no care, you no care”.

Geopolitics: “It’s me, hi, I’m the problem”. If you don’t have a teenage daughter like myself you might not recognize the Taylor Swift lyric. There were four deep dive articles from Reuters, Bloomberg, South China Morning Post, and the Financial Times today on the lackluster performance of Chinese equities despite the economic recovery with blame placed on geopolitical tensions. Ray Dalio posted a fairly dark LinkedIn post on the US-China political tensions though I suppose if you want to sell a book you need to create some controversy. If this argument was true, shouldn’t US multinationals see a similar effect? At a minimum, shouldn’t we be pricing Taiwanese stocks at zero then? Wouldn’t this quickly escalate into a regional event with Japan, South Korea, and Australia pulled in? And yet NONE of these markets, including US multi national companies (MNCs), are affected by the geopolitical narrative. What the articles miss is the effect of the strong dollar as a headwind on risk assets including China. I would agree that a US recession is apt to weigh on risk sentiment though the lack of attention to the US dollar’s strength is surprising. The key is to watch the US dollar. The articles mention the outperformance of onshore/Mainland China versus offshore/Hong Kong-US ADRs which we have been pointing out for some time. They failed to point out MSCI China is 80% offshore/Hong Kong-US ADRs with only a 20% weight to onshore China.

A Chinese media source noted the effect of Chinese advertisers on META’s strong advertising results. Do you find it ironic that META, which is heavily engaged in lobbying to ban TikTok, benefited from Chinese companies’ advertising?

The Hang Seng and Hang Seng Tech diverged +0.42% and -0.26% respectively on volume -0.82% from yesterday which is 80% of the 1-year average. 263 stocks advanced while 215 stocks declined. Main Board short turnover increased +7.23% from yesterday which is 91% of the 1-year average as 19% of turnover was short turnover. Value factors outperformed growth as large caps outperformed small caps. Top sectors were financials gaining +1.77%, healthcare up +0.99%, and utilities closing higher +0.98% while communication fell -0.84%, staples closed down -0.5%, and discretionary was lower -0.48%. Top sub-sectors were insurance, capital goods, and healthcare equipment while household products, semis, and food underperformed. Southbound Stock Connect volumes were light as Mainland investors bought $10 million of Hong Kong stocks with being Tencent a small net sell, Meituan and Kuiashou being small net buys.

Shanghai, Shenzhen, and STAR Board diverged +0.67%, +0.12%, and -0.09% respectively on volume -6.8% from yesterday which is 114% of the 1-year average. 2,702 stocks advanced while 1,925 stocks declined. Value factors outperformed growth factors as large caps outperformed small caps. Top sectors were healthcare gaining +1.89%, utilities up +1.44%, and industrials closing higher +1.33% while communication fell -1.89%, tech was down -1.04%, and energy closed lower -0.1%. Top sub-sectors were insurance, healthcare, and chemical industry while internet, computer hardware, and cultural media were the worst. Northbound Stock Connect volumes were high as foreign investors sold -$10 million of Mainland stocks while Kweichow Moutai, Longi, and Ping An were net sells. CNY was flat overnight versus the US dollar as the Asia dollar index was off slightly. Treasury bonds rallied with the 10-Year Treasury yield falling below 2.8%. Shanghai copper fell while steel gained.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.92 versus 6.92 yesterday
• CNY per EUR 7.64 versus 7.65 yesterday
• Asia Dollar Index -0.01% overnight
• Yield on 10-Year Government Bond 2.78% versus 2.80% yesterday
• Yield on 10-Year China Development Bank Bond 2.96% versus 2.98% yesterday
• Copper Price -0.49% overnight
• Steel Price +0.70% overnight