The Real Estate Phoenix Rises From The Ashes, Week In Review

Week in Review

• Asian equity markets had a mixed performance week as Hong Kong, and Mainland China were the only markets to end the week higher on China reopening and the real estate rebound.
• China’s Politburo met on Tuesday as policymakers gear up for the Central Economic Work Conference (CEWC) next week, which led to increased reopening signaling from the government.
• Online entertainment platform Hello Group beat analyst estimates on revenue and adjusted net income this week.
• In this week’s video, cultural analyst Xiabing Su travels to Dali, Yunnan, China. In the video, we can see that travel restrictions are being lifted within China.

Friday’s Key News

Asian equities were mixed today as North Asia outperformed led by Hong Kong while India was off. My Yogi Berra-ism that “China can’t outperform if India is outperforming” is playing out as investors should compare the valuations of the two markets.

China’s reopening trade is in full swing on high volumes today, as Hong Kong’s most heavily traded stock by value was Tencent, which gained +2.58% after buying back stock today. Meanwhile, Meituan rose +5.72% on strong net buying from Mainland investors via Southbound Stock Connect. Alibaba gained +2.74%, and Kuaishou gained +2.04%.

The Hang Seng Index is near the 20k level, closing at 19,99,0, which is above the 200-day moving average for the first time since July 19, 2021. Mainland China grinded higher as Shanghai and Shenzhen posted small gains.

Investors cheered the November PPI, which came in at -1.3% year-over-year (YoY), and CPI, which came in at +1.6% YoY, as the low inflation numbers provide policymakers room for fiscal and monetary support.

President Xi received the red-carpet treatment in Saudi Arabia while Premier Li met with the IMF, World Bank, OECD, and WTO in Beijing today.

Treasury bonds were off as the Ministry of Finance announced RMB 750B of Treasury Bonds will be issued “to raise financial funds and support the development of national economy and social undertakings”. Real estate was the top sector in Hong Kong, gaining +9.97%, and Mainland China, gaining +3.28%, as distressed developer Sunac reported that it had renegotiated the terms of its offshore debt with its creditors, against the backdrop of policy support and equity issuance. Fellow distressed developer Longfor announced that it has redeemed a bond due in 2023 early at full par value. I need to revise my paper trade of long real estate bonds/short real estate stocks as these stocks are moving higher!

The CEWC, the important meeting that will announce the 2023 GDP growth target, will be followed by the Standing Committee on December 27^th.

There were 3,588 new covid cases, along with 13,004 asymptomatic cases. As our trading buddy Dave likes to say: “market no care”. If the market no care, you no care. That would have made a great Far Side cartoon…..

The Public Company Accounting Oversight Board (PCAOB) has stated a decision on PWC, KPMG, and Deloitte’s auditor reviews would be announced by year-end. If I were them, I would announce it after the close on a Friday. Why? So that they do not interfere with markets, but also because it would be forgotten over the weekend. Pure speculation on my part! Follow me on Twitter @ahern_brendan as I will send it out if there is a decision.

The Hang Seng and Hang Seng Tech indexes gained +2.32% and +2.33%, respectively, on volume that increased +24.12% from yesterday, which is 161% of the 1-year average. 411 stocks advanced, while 93 stocks declined. Main Board short turnover increased +9.51% from yesterday, which is 122% of the 1-year average. Growth and value factors were mixed as small caps outpaced large caps. The top performing sectors were real estate, which gained +9.99%, materials, which gained +5.17%, and utilities, which gained +5.06%. Meanwhile, healthcare was the only down sector, losing -0.34%. The top performing subsectors in Hong Kong included real estate, media, and materials, while food and pharmaceuticals were the only down subsectors. Southbound Stock Connect volumes were high at 2X the 1-year average as Mainland investors bought $95 million worth of Hong Kong stocks via Southbound Stock Connect as Meituan was a strong net buy along with Tencent and Kuaishou, though in smaller amounts.

Shanghai, Shenzhen, and the STAR Board gained +0.3%, +0.56%, and +0.44%, respectively, on volume that increased +15.9% from yesterday, which is 106% of the 1-year average. 1,825 stocks advanced, while 2,758 stocks declined. Growth and value factors were mixed as large caps outperformed small caps. The top performing sectors were real estate, which gained +3.27%, consumer staples, which gained +2.45%, and materials, which gained +1.48%. Meanwhile, utilities fell -0.26%, and communication fell -0.29%. The top-performing subsectors were household products, liquor, and household appliances, while land transportation, port industry, and highways were among the worst. Northbound Stock Connect volumes were high as foreign investors sold -$39 million worth of Mainland stocks. Shenzhen stocks were a net buy, while Shanghai stocks were a net sell. CNY gained +0.13% versus the US dollar closing at 6.96, Treasury yields were flat, and copper gained +1.18%.

Major City Mobility Tracker

It was interesting to see several cities post lower traffic congestion, though metro usage is clearly rebounding.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 6.96 versus 6.97 yesterday
• CNY per EUR 7.33 versus 7.35 yesterday
• Yield on 1-Day Government Bond 1.12% versus 1.15% yesterday
• Yield on 10-Year Government Bond 2.89% versus 2.89% yesterday
• Yield on 10-Year China Development Bank Bond 3.04% versus 3.03% yesterday
• Copper Price +1.18%