U.S. Dollar Takes Center Stage

Key News

Asian equities were mixed overnight on light volumes despite a strong U.S. equity performance yesterday with Hong Kong, China, South Korea, and Taiwan underperforming.

Macro took center stage as the U.S. dollar was strong overnight, with the Asia dollar index hitting another 52-week low as China’s onshore renminbi (CNY) declined $0.02/-0.37% to 7.22. This morning, China’s offshore renminbi (CNH), which trades overnight unlike CNY, is off nearly $0.05 to 7.27 which is apt to be a headwind for U.S.-China ADRs along with risk assets broadly. Very little on the micro side as the Party Congress continues in Beijing while Q3 earnings season rapidly approaches.

Onshore China’s recent rally took a breather while the Hang Seng consolidated around the 16,500 level as growth stocks underperformed. HK CEO John Lee’s speech had a nothing burger as incentives for expats and housing weren’t viewed as material. Some chatter about covid cases picking up in China as thirty-one provinces reported a total of 204 covid cases Tuesday while HK announced 5,124 new cases overnight. Foxconn announced it would enter the EV market which weighed on the space. Interesting that several Chinese property makers announced issuing government backed bonds.

Hong Kong listed internet stocks were weak along with the broader market. Hong Kong’s Main Board short sale activity declined -21% from yesterday though it remained elevated in individual names with Meituan having 29% of volume short, Alibaba HK 21%, Tencent 9%, and JD.com HK 28%. Short selling fell to 19% of Main Board total turnover. Another day of Mainland investors buying the Hong Kong dip via Southbound Stock Connect to the tune of $578 million while foreign investors sold Mainland stocks to the tune of -$830 million.

The Hang Seng and Hang Seng Tech fell -2.38% and -4.19% respectively on volume -15.04% from yesterday which is 68% of the 1-year average. 81 stocks advanced while 405 declined. Main Board short selling volume fell -21.04% from yesterday which is 77% of the 1-year average as 19% of Main Board trading was short today. Value factors outperformed growth factors as small caps edged out large caps. All sectors were down today with utilities and energy down -0.42% and -0.56% while finishing even lower were discretionary -4.72%, healthcare -4.04%, and communication -3.92%. Yesterday’s outperformers were among the worst performers with retailers, software, auto parts, and pharma/biotech all closing down. Southbound Stock Connect volumes were moderate/light as Mainland investors bought $578 million of Mainland stocks with Tencent a moderate/strong buy, Meituan a moderate net buy, Wuxi Biologics and BYD small net buys.

Shanghai, Shenzhen, and STAR Board fell -1.19%, -1.16%, and -1.09% on volume -4.23% from yesterday which is 77% of the 1-year average. 1,125 stocks advanced while 3,421 declined. Growth and value factors were mixed today as small caps edged out large caps. Energy was the only positive sector gaining +0.06% while noticeably down were staples -3.56%, discretionary -2.96%, and healthcare -2.42%. Top sub-sectors were marine/shipping, ports, education, and coal while restaurants, household appliances, liquor, and gas were among the worst. Northbound Stock Connect volumes were light/moderate as foreign investors sold -$830 million of Mainland stocks today. Treasury bonds rallied, CNY was off -0.34% versus the U.S. dollar to 7.22, and copper was off Wayne Gretzky -0.99%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.23 versus 7.20 Yesterday
• CNY per EUR 7.06 versus 7.08 Yesterday
• Yield on 10-Year Government Bond 2.71% versus 2.70% Yesterday
• Yield on 10-Year China Development Bank Bond 2.86% versus 2.86% Yesterday
• Copper Price -0.99% overnight