Real Estate Rebounds On Gov’t Backing As COVID Cases Increase

Key News

Asian equity markets were mixed overnight with Taiwan and South Korea outperforming.

Hong Kong and China were off with October’s PPI reported to be -1.3% and rising COVID cases blamed by brokers. I thought low inflation was a good thing. October’s CPI of 2.1% came in below expectations of 2.4% and September’s 2.8% in a good sign. There were 1,294 new COVID cases along with 6,882 asymptomatic cases as China enters flu season. We aren’t seeing citywide shutdowns though individual buildings and neighborhoods are in attempts to curtail the spread.

Real estate was the best-performing sector in Hong Kong gaining +4% and China finished higher +2.3% after it was announced $34.5 billion of property debt sales would be backed by the government. The government is walking a balancing act between allowing overleveraged property developers to finish the projects still under construction without letting them default. Foreign investor sentiment was worse than domestic investor sentiment as evidenced by Hong Kong (predominantly held by foreign investors) falling more than Mainland China (predominantly held by Chinese investors). Hong Kong’s most heavily traded were Tencent -3.66%, Meituan -3.02%, and Alibaba -1.64% as an analyst said Singles Day sales might disappoint. True, but they might exceed expectations as well! We have Alibaba’s earnings next week as well.

President Xi kicked off the World Internet Conference with a congratulatory message in another sign that China’s internet regulatory cycle is over. Hong Kong short turnover was moderate though JD.com has seen high short turnover as a percentage of total turnover at 31% today versus yesterday’s 33%. Hopefully the PCAOB provides information on their Hong Kong audit reviews as it would bring asset managers back into these names which would really put the shorts on notice. We had the first net sell day of Hong Kong stocks since September 26^th by Mainland investors via Southbound Stock Connect. The sale amount was only -$88 million as Tencent was a small net buy. Gold and precious metals had a strong day in the Mainland market while many growth stocks favored by foreign investors were off. iPod maker GoerTek (002241 CH) was off -10.29% after losing a “major overseas customer” ie Apple. After the close, Yicai Global reported that Luxshare (002475 CH) will be making Air Pod Pros 2s going forward. This “news” appears to have been well anticipated by the market as GoerTek is well of its 52-week high. RMB reached 9.02 on December 13, 2021. RMB closed at a 52-week low of RMB 2.85 today. The Asia dollar index was off very slightly though CNY eased to 7.25 versus the US dollar from 7.23.

The Hang Seng and Hang Seng Tech Index fell -1.2% and -1.89% on volume +6.27% from yesterday which is 90% of the 1-year average. 203 stocks gained while 284 fell. Main Board short turnover increased +2.49% from yesterday which is 85% of the 1-year average as 16% of total turnover was short turnover. Value factors outpaced growth factors slightly as small caps “outperformed” large caps. Top sectors were real estate up +4%, materials gaining +1.2% and financials closing slighty higher +0.3% while communication fell -3.44%, healthcare fell -2.63% and discretionary fell -2.51%. Top sub-sectors were material and real estate related along with semiconductors and banks while auto, software, and retailers were among the worst. Southbound Stock Connect volumes were moderate/high as Mainland investors sold -$88 million of Hong Kong stocks with Tencent a small net buy while Meituan was a moderate net sell.

Shanghai, Shenzhen, and STAR Board were off -0.53%, -0.41%, and -1.35% respectively on volume -6.85% from yesterday which is 80% of the 1-year average. 1,940 stocks advanced while 2,506 stocks declined. Value factors outpaced growth factors as small caps “outperformed” large caps. Top sectors were real estate up +2.3%, healthcare gaining +0.03%, and utilities up +0.01% while energy fell -1.47%, staples closed lower -1.43%, and tech finished down -1.4%. Top sub-sectors included precious metals, real estate related and pharma while power generators, coal and agriculture were among the worst. Northbound Stock Connect volumes were light as foreign investors sold -$94 million of Mainland stocks. Treasury bonds eased, CNY fell -0.3% versus the US dollar to 7.25, and copper gained +1.32%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.25 versus 7.25 yesterday
• CNY per EUR 7.28 versus 7.25 yesterday
• Yield on 10-Year Government Bond 2.69% versus 2.69% yesterday
• Yield on 10-Year China Development Bank Bond 2.82% versus 2.81% yesterday
• Copper Price +1.32% overnight