U.S.-China Relations Improve With ASEAN, China Exports

Key News

Asian equities had a strong day, with Hong Kong as the top regional performer. Investors cheered the falling US CPI in hopes it will temper the Fed’s aggressive interest rate hikes as the U.S. dollar weakened.

Hong Kong’s rise was fueled by yesterday’s news of Premier Li and the NDRC meetings with internet companies marking the end of China’s internet regulatory cycle. As noted yesterday, we would love to see an Ant IPO filing.

President Xi reaffirmed that China would continue to open up the economy overnight as the State Council outlined twenty-two reforms on free trade zone policies. U.S. and China diplomatic relations got water and fertilizer as Secretary of State Blinken met with senior Chinese diplomat Wang Yi in Indonesia today at the ASEAN Foreign Ministers’ meeting. In today’s Ministry of Commerce press conference, when asked about U.S. Commerce Secretary Gina Raimondo visiting China, spokesperson Shu Jueting stated, “China is open to such a visit and is in communication with the U.S. over the matter.” Climate czar John Kerry heads to China this Sunday.

The nattering nabobs of negativity will point to the weaker-than-expected June export/import data though that should make you worried about the global economy and not China’s economy. Our trader friend Dave says if “Market no care, you no care” and market no care about export/import data. If anything, it shows the Fed/global central bank hikes are working to diminish global demand. Exports were off -12.4% versus expectations of -10% and May’s -7.5%, and imports -6.8% versus expectations of -4.1% and May’s -4.5%. Remember China’s poor PPI? Commodity imports are largely higher year to date, year over year, when measured in tons though many are negative when measured in U.S. dollars. Crude oil imports year to date is 282mm tons which is +11.7% YTD YoY though in U.S. dollars -10.9% as the price of oil has fallen. Net net don’t overread the export/import data.

Hong Kong’s most heavily traded by value were Tencent +2.88%, Meituan +5.73%, Alibaba HK +3.23%, Kuaishou +7.94%, China Construction Bank flat/0% and JD.com HK +6.43% after announcing a ChatGPT large language model called ChatRhino as the Hang Seng Index ripped back above 19k level on higher volume. Baidu HK +4.44% though news overnight that China’s government would regulate A.I./ChatGPT should help as remember the company said they have already worked with the government on regulation. I don’t believe Main Board short turnover was likely driven by covering, which obviously helped the rally.

Mainland China also had a strong day as well with foreign investors buying a very healthy $1.896B of Mainland stocks. This is an unusually large amount for a non-index rebalance day. Autos were hit with profit taking along with some bickering amongst the companies about their sales numbers. CNY gained versus the U.S. dollar to 7.16 though the Asia dollar index gained +0.35% versus the U.S. dollar.

The Hang Seng and Hang Seng Tech gained +2.6% and +3.82% on volume +32.78% from yesterday, 99% of the 1-year average. 434 stocks advanced, while 58 stocks declined. Main Board short turnover increased +3.65% from yesterday, 98% of the 1-year average, as 17% of turnover was short turnover. The growth factor outperformed the value factor as large caps outpaced small caps. All sectors were positive, with healthcare +4.72%, materials +3.57%, and communication +3.49%. The top sub-sectors were retailing, pharma, and software, while food was flat. Southbound Stock Connect volumes were moderate as Mainland investors sold -$41mm of Hong Kong stocks, with Tencent a moderate a net sell, Kuiashou a moderate net buy, and Meituan a small net buy.

Shanghai, Shenzhen, and STAR Board gained +1.26%, +1.39%, and +1.12% on volume +0.82% from yesterday, 102% of the 1-year average. 3,628 stocks advanced, while 1,052 declined. Value and growth factors performed well, while large caps outpaced small caps. All sectors were positive, with communication +3.43%, staples +2.79%, and tech +2.39%. The top sub-sectors were cultural media, chemical, and precious metals, while motorcycles, auto parts, and autos were the worst. Northbound Stock Connect volumes were moderate/high as foreign investors bought +$1.896B, with Kweichow Moutai a moderate/large net buy, Longi Green Tech a moderate net sell, and Foxconn a very small net buy. CNY and the Asia dollar index rallied versus the U.S. dollar, with CNY closing at 7.16. Treasury bonds sold off while copper and steel rallied.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.16 versus 7.19 yesterday
• CNY per EUR 8.00 versus 7.93 yesterday
• Yield on 10-Year Government Bond 2.64% versus 2.64% yesterday
• Yield on 10-Year China Development Bank Bond 2.77% versus 2.76% yesterday
• Copper Price +1.06% overnight
• Steel Price +0.60% overnight