Asian equities curbed yesterday’s enthusiasm driven by China’s positive policies following the National People’s Congress as SVB’s collapse crushed Asian investor sentiment on financial contagion fears.
I can’t recall a day with such poor advance/decline ratios with Japan’s Topix posting just 66 advancers versus 2,082 decliners, Hang Seng Composite finishing with 73 advancers versus 439 decliners, South Korea’s Kospi having 37 advancers versus 769 decliners, and Thailand with 295 advancers versus 1,664 decliners. Hong Kong was off far more than Mainland China as foreign investors did their usual freak out while Mainland investors were far less concerned. The Asia Dollar Index and China’s renminbi CNY fell -0.29% and -0.42%.
The US and UK selling Australia nuclear submarines for $245 billion didn’t appear a factor despite the reality of regional nuclear proliferation. There were positives on the diplomatic front as President Biden is expected to speak to President Xi. Chinese Foreign Ministry spokesperson Wang Wenbin stated, “China and the US should maintain necessary communication” and China reinstating visas that were issued pre-covid which eliminates a hurdle for foreigners to visit China. For China to truly reopen requires western airlines to reestablish flights to/from China which hasn’t occurred, making trips from Europe and the US’ east coast difficult.
Several China economic data points will be released later today. None of the positives mattered in a risk off day with all Hong Kong sectors negative as Hong Kong’s most heavily traded were Tencent -0.93%, Alibaba HK -3.9%, AIA -4.38%, Meituan -2.79%, and HSBC -4.71%. Mainland investors bought the dip today with $623 million of net buying with Tencent a strong net buy. Semis was a rare bright spot as the Mainland’s STAR Board gained +1.45% as China will turn to domestic manufacturers due to Western curbs. Shanghai and Shenzhen were off -0.72% and -0.98% as foreign investors were a small net buy +$109 million via Northbound Stock Connect. Autos were weak in both Hong Kong and China as Geely Auto (175 HK) -3.99% announced discounts similar to moves made by rivals.
I stumbled on an interesting data point on my Bloomberg terminal yesterday. Here is the probability of recession by country: US 60%, UK 75%, Germany 60%, France 70%, China 15% and Japan 20%. Remember 60% of MSCI All Country World Index is US stocks while China is 3.5% as of 2/28/2023. Think investors are properly allocated? Me neither.
The Hang Seng and Hang Seng Tech fell -2.27% and -2.59% on volume -9.84% from yesterday which is 105% of the 1-year average. 73 stocks advanced while 439 stocks declined. Main Board short turnover declined -15.6% from yesterday which is 97% of the 1-year average as 16% of turnover was short turnover. Growth and value factors were both off as small caps “outperformed” large caps. All sectors were down with healthcare off -0.06%, while tech finished -3.26%, discretionary fell -3.19%, and utilities closed lower -2.83%. Semis was the only positive sub-sector as insurance, technical hardware/equipment, and food/staples were the worst. Northbound Stock Connect volumes were light as Mainland investors bought $623 million of Hong Kong stocks with Tencent a strong buy and Meituan a small net sell.
Shanghai, Shenzhen, and STAR Board were mixed -0.72%, -0.98%, and +1.45% respectively on volume +10.98% from yesterday which is 104% of the 1-year average. 874 stocks advanced while 3,864 stocks declined. Growth outperformed value as small caps “outperformed” large caps. Top sectors were utilities gaining +0.71%, tech closing higher +0.27%, and staples finishing +0.05% while energy fell -1.98%, industrials closed lower -1.12%, and financials were down -0.86%. Top sub-sectors were agriculture, semis, and telecom while marine industry, power generation equipment, and insurance were the worst. Northbound Stock Connect volumes were moderate as foreign investors bought $109 million of Mainland stocks. CNY fell -0.5% versus the US dollar to close at 6.88, Treasury bonds rallied while Shanghai copper fell -1.01%, and steel gained +0.48%.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 6.88 versus 6.85 yesterday
- CNY per EUR 7.37 versus 7.34 yesterday
- Yield on 10-Year Government Bond 2.86% versus 2.87% yesterday
- Yield on 10-Year China Development Bank Bond 3.06% versus 3.06% yesterday
- Copper Price -1.01% overnight
- Steel Price +0.48% overnight