Political Rhetoric Or Negotiating 101, PMIs Shine! BYD’s BOOM!

Key News

Asian equities were lower in advance of central banks hiking interest rates this week, while India managed a small gain and the Philippines and Taiwan underperformed.

“De-risking” is occurring across risk assets globally along with some profit taking following the strong stock year to date performance. This is occurring globally, not just in Asia or China. In Asia, and yesterday in the US, attention was given to the sharp increase in US political rhetoric such as a Tik Tok ban, Huawei, Taiwan war by 2025, etc. though, isn’t Secretary of State Blinken visiting China next week? Could these “leaks”/news be nothing more than a negotiating tactic? Seems like a logical strategy to me!

What did CNY, our risk barometer, do yesterday? Nothing. The key for investors to ask is will the pullback be bought. See all the managers saying they are overweight China? Me neither! Last night we had the January Manufacturing PMI rise to 50.1 versus expectations of 50.1 and December’s 47 while the Non-manufacturing (Service) PMI was 54.4 versus expectations of 52 and December’s 41.6. See other global PMIs rising? Me neither.

Northbound Stock Connect flows were very strong again with $1.501 billion of net buying from foreign investors with investors buying large/mega cap growth stocks favored by both domestic and foreign investors. That flow isn’t coming from global listed ETFs as there is some chatter that hedge funds who bought US China ADRs/Hong Kong internet stocks may be migrating to Chinese A-shares as a catch-up trade. Maybe though, we’d see some usage of China A ETFs though that isn’t occurring. I still believe overweight China is far from commonplace especially as we head into Q4 financial results/Q1 outlook for Chinese internet stocks.

The PMI data shows that the economy/consumer are rebounding similar to the travel data from last week. Regardless we had a pullback with the Hang Seng Index closing below 22k at 21,842 with Hong Kong’s most heavily traded stocks being Tencent -1.29%, Alibaba HK -1.28%, and Meituan +0.63%. Healthcare was the worst sector in both Hong Kong and China after disappointing results from several companies. BYD gained +2.25% after it reported net income increased a mere +458% from 2021 after selling 1.86 million EVs in 2022! Premier Li attended a PBOC economic symposium along with several senior government officials.

One comment on Bytedance/Tik Tok. Seen any analysis of their ownership? Should be fun when global private equity ownership positions and their end clients (US pension funds, foundations and endowments) are disclosed.

The Hang Seng and Hang Seng Tech fell -1.03% and -0.82% respectively on volume -14.48% from yesterday which is 138% of the 1-year average. 156 stocks advanced while 334 stocks declined. Main Board short turnover fell -31% from yesterday which is 116% of the 1-year average as 15% of turnover was short turnover. Growth and value factors were mixed as small caps “outperformed” large caps. Materials was the only positive sector +0.49% while healthcare fell -3.27%, real estate closed lower -2.59%, and staples finished -2.04%. Top sub-sectors were food/staples, auto, and materials while pharma/biotech, real estate, and household/personal products were among the worst. Southbound Stock Connect volumes were moderate/high as Mainland investors sold -$220 million of Hong Kong stocks with Tencent seeing another big sell, though not as big as yesterday’s, Kuaishou was a small net sell, and Meituan was a small net buy.

Shanghai, Shenzhen and STAR Board fell -0.42%, -0.36% and -1.67% on volume -15.4% from yesterday which is 100% of the 1-year average. 2,771 stocks advanced while 1,828 stocks declined. Growth and value factors both performed well while small caps outpaced large caps. Top sectors were real estate +1.66%, materials +0.51% and energy +0.49% while healthcare -2.26%, staples -2.11% and tech -1.47%. Top sub-sectors were petrochemical, chemical fiber and shipping while liquor, office supplies and restaurants were among the worst. Northbound Stock Connect volumes were moderate/high as foreign investors bought $1.501B of mainland stocks. CNY fell very slightly versus the US dollar to 6.75, Treasury bonds had a strong day and copper fell -0.34%.

Chinese Major City Mobility Tracker

Back to work as traffic and subway usage jumps post holiday.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.75 versus 6.75 yesterday
• CNY per EUR 7.32 versus 7.36 yesterday
• Yield on 10-Year Government Bond 2.89% versus 2.91% yesterday
• Yield on 10-Year China Development Bank Bond 3.05% versus 3.08% yesterday
• Copper Price -0.34% overnight