Reopening Rumor Sends China Stocks Flying

Key news

Asian equities were largely higher as Mainland China, and Hong Kong outperformed significantly while the Philippines was closed for All Saints Day.

Hong Kong and Mainland China ripped higher on rumors that a government committee has been established to study and plan for a full reopening in China in March 2023. The rumor referenced a spring release that outlined reopening conditions, including raising the vaccination rate for the elderly, raising drug stockpiles, and increasing hospitals’ ability to handle an uptick in patients. At his daily press conference, the Foreign Minister’s spokesperson stated he was “unaware” of the committee, though that doesn’t mean much. His comments pulled Hong Kong-listed stocks off their highs, though the market was due for a bounce as it appears very oversold. The government will no doubt note the market’s reaction. Whether or not the rumor is true, it shows investors’ desire for such a plan, which is why such a committee will likely be established. Remember that following the Party Congress, it appears to be back to business for China’s government as no major policies were changed in 2022 because government officials spent their time making sure they were going part of the next five-year political cycle.

Yesterday’s purchasing managers’ index (PMI) release showed that export demand is slumping, which means China’s domestic consumption needs to pick up the slack. Easing COVID policies would likely unleash household spending that has been put on hold. China’s policy changes never come as a rip of the band-aid. Rather, the government follows an incremental trajectory. Hong Kong and Macau are reopening, providing a path for the Mainland to follow.

Other factors helped the market today, including a rumor, since denied, that Prosus’ remaining stake in Tencent could be bought, October electric vehicle (EV) sale numbers look strong, and the official start of Alibaba’s Singles Day sales extravaganza. Volumes were very strong as both Hong Kong and Mainland China saw a surge in volume as Mainland investors were significant buyers of Hong Kong stocks overnight, snapping up $947 million worth, while foreign investors bought Mainland stocks, to the tune of $846 million via Northbound Stock Connect. Tencent and Meituan saw strong net buying, while Kuaishou saw moderate net buying via Southbound Stock Connect.

Reopening plays such as restaurants, airlines, and pharmaceuticals outperformed, along with favored stocks. The most heavily traded Hong Kong stocks by value were Tencent, which gained +10.6%, Meituan, which gained +11.86%, and Alibaba HK, which gained +7.57%. On the Mainland, the most heavily traded stocks by value were liquor giant Kweichow Moutai, which gained +8.3%, EV battery giant CATL, which gained +3.57%, and EV maker and Berkshire HathawayBRK.B
holding since 2009 BYD +6.14%. Short volume in Hong Kong-listed internet stocks was light, compared to other previous bounces where Hong Kong short volumes increased, but that didn’t happen today. Hong Kong’s short volume is starting to get more press, though we have been pointing it out all year.

I have also noticed more attention being given to US and global multinationals’ Chinese revenue exposure. While businesspeople have been getting along just fine, politicians need to do a better job. A Biden/Xi meeting at the mid-November G-20 meetings in Indonesia looks probable, which would be a good first step. Resolving the Holding Foreign Companies Accountable Act (HFCAA) would be another!

The Hang Seng and Hang Seng Tech indexes gained +5.23% and +7.80%, respectively, on volume that increased +17.42% from yesterday, which is 125% of the 1-year average. 471 stocks advanced, while 31 stocks declined. Main Board short turnover increased +1.95% from yesterday, which is 119% of the 1-year average, as 17% of total turnover was short turnover. Growth factors outpaced value factors as large caps outperformed small caps. All sectors were positive as communication services gained +10%, consumer discretionary gained +8.29%, and healthcare gained +6.84%. Meanwhile, financials lagged to gain only +2.26%. The top-performing subsectors were software, retailers, and pharmaceuticals. Southbound Stock Connect volumes were high as Mainland investors bought $947 million worth of Hong Kong-listed stocks.

Shanghai, Shenzhen, and the STAR Board gained +2.62%, +2.97%, and +1.41%, respectively, on volume that increased +11.33% from yesterday, which is 100% of the 1-year average. 3,960 stocks advanced, while 673 stocks declined. Growth factors outpaced value factors as large caps outperformed small caps. All sectors were positive as consumer staples gained +7.06%, consumer discretionary gained +5.79%, and communication services gained +4.46%. Meanwhile, energy lagged to gain only +0.49%. The top-performing subsectors were restaurants, airports, airlines, and liquor stocks. Stock Connect volumes were high as foreign investors bought $846 million worth of Mainland stocks. Treasury bonds sold off, CNY gained +0.47% versus the US dollar to close closing at 7.26 CNY per USD, while copper gained +0.55%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.26 versus 7.31 yesterday
• CNY per EUR 7.21 versus 7.22 yesterday
• Yield on 1-Day Government Bond 1.25% versus 1.25% yesterday
• Yield on 10-Year Government Bond 2.66% versus 2.64% yesterday
• Yield on 10-Year China Development Bank Bond 2.86% versus 2.84% yesterday
• Copper Price +0.55% overnight