Rescue Fund Powers Real Estate Rebound

Key News

Asian equities were a sea of red on light volumes following the US equity market’s Friday fall in advance of the Fed’s anticipated 75bps interest rate hike. Hong Kong-listed internet stocks followed their US counterparts’ move on Friday lower overnight.

The Financial Times reported that a three-tier system of data transparency would be applied to US-listed Chinese companies to allow most companies to adhere to the Holding Foreign Companies Accountable Act (HFCAA). The three-tier system is like our recommendation to divide companies between the small number of State-Owned Enterprises (SOEs) that likely have sensitive data and the vast majority of private companies that have nothing to hide. However, the China Securities Regulatory Commission (CSRC), China’s SEC-like financial regulator, denied having studied a three-tier system.

Real estate was the top performer in Hong Kong and Mainland China, gaining +3.1% and +1.74% in both markets, respectively. The roll out of a bailout fund to help distressed property developers finish what they started was a catalyst for the sector. This would enable mortgage holders to pay their mortgages once their apartments are completed.

Mainland-listed home appliance makers including Gree, which gained +0.85%, and Haier, which gained +0.76% on a Ministry of Commerce (MoC) statement supporting energy efficient home appliance purchases.

The clean technology ecosystem was off on the Mainland as electric vehicles (EVs), solar companies, and wind companies were all weak today. It was a bit of a value rally in both Mainland China and Hong Kong today. Companies in Shenzhen are being asked to have non-vital personnel work from home as several big factories will operate under a closed loop system. ZTE, Huawei, and BYD have stated that factory personnel will stay onsite until the COVID flare-up dies down. Meanwhile, Shanghai designated several neighborhoods as high-risk areas, which would prevent non-vaccinated people from being in public spaces. News that government leadership have been vaccinated with local shots is seen as an effort to raise vaccination rates among the elderly. Approximately 25% of those over the age of 65 have not taken a single vaccine dose. Mainland media also noted the first case of monkeypox in Japan. Clearly, officials are taking the situation seriously. However, they are not locking down Shenzhen in the manner that Shanghai was shut earlier this summer.

Shanghai and Shenzhen are sitting at support levels of 3,250 and 2,150, respectively. Meanwhile, the Hang Seng is back near the 20,000 level. Alibaba will reports after the close in Hong Kong next Thursday.

The Hang Seng and Hang Seng Tech indexes were off -0.22% and -1.38%, respectively, on volume that was +4.96% higher than Friday, which is 63% of the 1-year average. 202 stocks advanced while 272 declined. Hong Kong short sale turnover increased +8.6% from Friday, which is 70% of the 1-year average, as short turnover accounted for 18% of turnover in Hong Kong. Value factors outperformed growth factors and small caps outperformed large caps. The top performing sectors on the day were real estate, which gained +3.1%, financials, which gained +0.43%, and energy, which gained +0.24%. Meanwhile, health care fell -2.05%, discretionary fell -1.58%, and communication services fell -1.55%. The top performing sub-sectors were real estate developers and banks. Meanwhile, autos, electric vehicles, retailing, and software were among the worst. Southbound Stock Connect volumes were light as Mainland investors were net buyers of Hong Kong stocks. Tencent, Kuaishou, and Li Auto all saw some net buying while Meituan was sold slightly.

Shanghai, Shenzhen, and the STAR Board were off -0.6%, -0.92%, and -1.03%, respectively, on volume that was down -8.2% from Friday, which is 80% of the 1-year average. 1,316 stocks advanced while 3,149 declined. Value factors outperformed growth factors today while large caps outperformed small caps. The top performing sectors were real estate, which gained +1.8%, energy, which gained +1.18%, and staples, which gained +0.44%. Meanwhile, industrials fell -1.36%, tech fell -1.27%, and consumer discretionary fell -0.78%. The top performing sub-sectors were household appliances, restaurants, and precious metals. Meanwhile, the clean technology ecosystem was among the worst performing sub-sectors as electric vehicles, solar power, and wind stocks were mostly down on the day. Northbound Stock Connect volumes were light as foreign investors sold -$501 million worth of Mainland stocks today. Treasury bonds rallied, CNY was flat versus the US dollar, and copper gained +1.49%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.75 versus 6.75 Friday
• CNY/EUR 6.91 versus 6.90 Friday
• Yield on 1-Day Government Bond 1.16% versus 1.18% Friday
• Yield on 10-Year Government Bond 2.78% versus 2.79% Friday
• Yield on 10-Year China Development Bank Bond 3.04% versus 3.05% Friday
• Copper Price +1.49% overnight