Week in Review
- Asian equities were higher this week on improved chances of a US rate cut towards the end of the year after Powell’s press conference on Monday. Hong Kong outperformed and Pakistan underperformed as one of the only markets lower for the week.
- Baidu had a significant upswing this week as China’s government issued further policy support for autonomous vehicles and 11 new cities announced plans to adopt Baidu’s robo-taxis.
- Semiconductor stocks had a good week in China as Will Semiconductor reported a net income increase of 754% in dollar terms in its first half 2024 results.
- China’s inflation rate, measured by CPI, was reported this week, coming in at a lower-than-expected 0.2% in June, year-over-year.
Key News
Asian equities were mixed but mostly higher overnight as Hong Kong outperformed and Taiwan underperformed.
Mainland China was flat on trade data that indicated a record surplus of nearly $100 billion in June on exports that increased nearly 9% year-over-year. This contrasts with the relatively lackluster manufacturing PMIs released earlier in the week.
Real estate was the top-performing sector in both Hong Kong and Mainland China. The main catalyst was the significant deceleration in sales declines for top developers in China. Also, some are expecting the famous motto “housing is for living, not for speculation” to be removed from official policy “decision” or “jue-ding” from next week’s Third Plenum, which will be in session starting Monday. There will be limited news from the central committee meetings in the first two days next week while leaders meet. Then, some press conferences will likely be held before the release of the full communique, which is called the “decision”.
The growth factor outpaced the value factor significantly in Hong Kong and somewhat in Mainland China. This is because internet stocks had a great day despite some analysts cutting their targets for Alibaba’s net profit in Q2. Baozun gained +5.5%, Alibaba gained +3.9%, and JD.com was up +4.9%.
A common misperception of the sell-side/stock analyst’s job is the belief that their job is to predict whether a company’s stock will rise or fall. Rather, their job is to maintain a relationship with the company to pass along insights and attempt to model a company’s income and balance sheet. There are innumerable inputs that make the modeling job difficult, such as the domestic economy, and monetary and fiscal policies that can create significant headwinds or tailwinds, in addition to the unexpected like natural disasters. While Q2 earnings season remains a few weeks away, companies clearly provide analysts guidance before their quiet period. Across the China E-Commerce space, the corporate feedback appears positive. Yes, China’s domestic consumption remains tepid as low consumer confidence due to real estate losses weighs on sentiment. The Western media coverage of the 6/18 (June 18th) E-Commerce sales festivals was largely negative despite evidence to the contrary. We can assume 6/18 discounts are apt to reduce margins, though strong buybacks should mitigate the impact on profitability. We shall know in a few weeks!
The Hang Seng and Hang Seng Tech indexes gained +2.59% and +2.32%, respectively, on volume that increased +19% from yesterday. Mainland investors bought a net $22 million worth of Hong Kong-listed stocks and ETFs via Southbound Stock Connect. The top-performing sectors were Real Estate, which gained +4.39%, Consumer Discretionary, which gained +3.44%, and Health Care, which gained +3.07%. Meanwhile, the worst-performing sectors were Utilities, which fell -0.78%, Materials, which fell -0.57%, and Energy, which fell -0.44%.
Shanghai, Shenzhen, and the STAR Board diverged to close +0.03%, -0.14%, and +0.05% overnight on volume that decreased -13% from yesterday. The top-performing sectors overnight were Real Estate, which gained +3.32%, Financials, which gained +1.70%, and Consumer Discretionary, which gained +1.48%. Meanwhile, the worst-performing sectors were Energy, which fell -1.23%, Utilities, which fell -1.00%, and Information Technology, which fell -0.75%.
New Content
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Revisiting Hong Kong: Optimism Still Improving Even As Rally Gets Tested
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.25 versus 7.26 yesterday
- CNY per EUR 7.90 versus 7.89 yesterday
- Yield on 1-Day Government Bond 1.24% versus 1.24% yesterday
- Yield on 10-Year Government Bond 2.26% versus 2.26% yesterday
- Yield on 10-Year China Development Bank Bond 2.34% versus 2.35% yesterday
- Copper Price +0.23%
- Steel Price -0.26%
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