Tale Of Two Chinas As Onshore & Offshore Diverge

Key News

Asian equity markets were mixed on light volumes in advance of today’s US CPI print.

Overnight was a Tale of Two Chinas: Onshore (Mainland/domestic investors) versus Offshore (Hong Kong-US ADRs/foreign investors), as both performance and volume diverged. Mainland China investors cheered yesterday’s economic release with small gains on high volumes while Hong Kong fell on light volumes. China’s credit expansion will be a driver of economic growth, while M2 provides a nice tailwind for stocks.

Brazil’s President Lula will visit China next week following French President Macron’s visit last week. Australia and China have made some baby steps in repairing their economic and trade relationship. There is also chatter that the US Treasury’s Janet Yellen and Commerce’s Gina Raimondo will visit China though there is nothing official yet.

Bookings for China’s May Day Holiday look very strong versus 2019 data. Breadth was strong in China today on strong volumes and growing stock margin balances, which is garnering the attention of our veteran trader friend Dave and one Asia based reporter.

Liquor giants Kweichow Moutai and rival Wuliangye Yibin were off -2.94% and -2.61%, respectively, as demand for Moutai ingredients has been less than anticipated. The stocks are widely held by foreign investors, who sold -$611 million worth of Mainland stocks today. Like many Asian equity markets, Hong Kong volumes were light, which likely exacerbated today’s moves.

Tencent fell -5.15% as its early investor Prosus appears to be in the process of selling 1% of its stake (96 million shares). Mainland investors also sold Tencent via Southbound Stock Connect. The irony is that Mainland investors front-run Prosus selling. Tencent buying back shares is great, though it isn’t going to come close to offsetting the Prosus sale. The potential oversight of AI/chat bots weighed on Sense Time, which fell -4.24%, and Alibaba, which closed lower by -3.27%. JD.com was off -3.53% on reorganizing their retail business. Berkshire Hathaway trimming their widely successful BYD investment weighed on the stock, which fell -2.28%, despite the company’s continued success. I would imagine Berkshire is cutting due to the size of their stake.

Real estate was Hong Kong’s top-performing sector, gaining +2.25% following yesterday’s strong move. It is worth noting that short volume remains light while overall Hong Kong breadth was positive. It is frustrating to see China’s economy, on a relative and absolute basis, have so many positives that are not being reflected in stock prices. With Warren Buffet on CNBC this morning, he reminds me of the quote “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” Warren Buffet and Charlie Munger showed extreme patience buying BYD back in 2008 as the stock did NOTHING for 10 years before skyrocketing. I need to summon my inner Warren and Charlie!

The Hang Seng and Hang Seng Tech indexes lost -0.86% and -1.92%, respectively, on volume that declined -14.82% from yesterday, which is 90% of the 1-year average. 258 stocks advanced while 224 stocks declined. Main Board short turnover declined -15.42% from yesterday, which is 69% of the 1-year average as 13% of turnover was short turnover. Value factors outperformed growth factors as small caps “outperformed” large caps. Top sectors were real estate up +2.25%, energy closing higher +1.51%, and healthcare gaining +1.03% while communication fell -4%, discretionary closed lower -2.67%, and staples was down -2.39%. Top sub-sectors were energy, semis, and insurance while software, food, and retailing underperformed. Southbound Stock Connect volumes were moderate as Mainland investors sold $32 million of Hong Kong stocks with Tencent a large net sell, Meituan a moderate net sell, and Kuaishou a small net sell.

Shanghai, Shenzhen, and the STAR Board gained +0.41%, +0.36%, and +0.68%, respectively, on volume +4.75% from yesterday which is 124% of the 1-year average. 2,810 stocks advanced while 1,831 stocks declined. Value factors outperformed growth factors as large caps outpaced small caps. Top sectors were communication gaining +5.59%, tech up +1.21%, and real estate closing higher +0.52% while staples fell -2.32%, discretionary closed lower -1.36%, and healthcare finished down -0.8%. Top sub-sectors were telecom, motorcycle, and internet while liquor, office supplies, and restaurants underperformed. Northbound Stock Connect volumes were high as foreign investors sold -$611 million of Mainland stocks with Kweichow Moutai and Foxconn net sells while CATL was flat, and Gree was a net buy. CNY was flat closing down -0.04% at 6.88 while Treasury bonds rallied.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.88 versus 6.88 yesterday
• CNY per EUR 7.52 versus 7.51 yesterday
• Asia Dollar Index +0.02% overnight
• Yield on 10-Year Government Bond 2.81% versus 2.82% yesterday
• Yield on 10-Year China Development Bank Bond 2.99% versus 3.00% yesterday
• Copper Price +0.61% overnight
• Steel Price +0.28% overnight