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Asian equities were lower overnight as Japan significantly underperformed and closed lower by almost -2%, though volumes in the region were light due to market holidays. India, Indonesia, Malaysia, Pakistan, the Philippines, and Singapore celebrated Eid al-Adha, the Feast of Sacrifice, which is the second of the two main Islamic holidays.
After Friday’s close, May aggregate financing and new loan data missed expectations, weighing on US-listed China ADRs’ Friday performance. Both Mainland China and Hong Kong bounced around the room on light volumes today despite mixed economic data released mid-morning, though markets arguably showed some resilience. Growth stocks were much better than value stocks in both Hong Kong and Mainland China.
May Industrial production increased by +5.6% year over year (YoY) from April’s 6.7% versus expectations of 6.2%. May retail sales increased by +3.7% YoY versus April’s 2.3% and expectations of 3%. Digging into the retail sales data, year-to-date online retail sales increased by +12.4%, while online retail sales of physical goods increased by +11.5%, accounting for 24.7% of total retail sales of social consumer goods. The better-than-expected retail sales, especially online retail sales, were likely helped by JD.com’s June 18th (618) E-commerce event and Alibaba’s strong pre-sales.
Hong Kong’s most heavily traded stocks by value were Tencent, up +0.37%, Meituan, up +1.83%, Alibaba HK, down -0.41%, China Mobile, down -1.22%, and BYD, up +1.74% as the company reported selling 35,370 Seagulls, its low-cost EV car, in May despite Berkshire Hathaway trimming its position by 1.35 million shares (reduced its stake to 6.9% from 7.02%). Mainland investors today bought $483 million worth of Hong Kong stocks and ETFs. There was a fair amount of media attention to China’s potential retaliation against “preliminary” EU EV tariffs focused on EU pork. As predicted, the Chinese government recognizes Spain, Italy, and France were the main sponsors since their domestic automakers have little sales or no manufacturing in China.
Guess who is the EU’s largest pork exporter? According to Reuters, Spain exported 560,000 tons/20% of its pork exports to China in 2023. Suddenly, Spain has asked to tap the brakes as I imagine Spanish farmers are important voters. Even with all of the China EV “overcapacity,” vehicle stocks were one of the best sectors in both Mainland China and Hong Kong as Brilliance Auto (1114 HK) gained +18.79% after it announced an HK $4.30 special dividend, which is a +50% yield after the stock’s jump. The company paid a special dividend of HK $1.50 last month. The real estate sector was weak in both markets as it fell by -1.19% in Hong Kong and -2.07% in Mainland China as May new and used home sales declined versus April. PBOC data showed the rate for new housing loans fell to 3.64% in May from 3.7% in April and -0.53% from a year ago. Arguably, it is still early from what is being called the May 17/517 new property rules driven by bottom-up city-driven policies lowering loan rates and minimum down payment ratios. Premier Li is now in Australia after visiting New Zealand, which we believe is a positive sign.
Reuters had a very good article back on June 14th titled “US industry groups seek the hearing, more on Biden’s China tariff hike.” 173 US trade associations, not companies but trade associations, wrote to the US Trade Representative Office asking for an extension of the public comment period on proposed increased tariffs. The groups involved ranged from semiconductor, solar, beer, and retail to automobile and truck part trade associations. We know it is an election year, so swing states like Michigan and Wisconsin will receive lots of candidate TLC like the other 6 swing states. It is amazing that the media is allocating attention to the one anti-EV automobile trade group while the other 173 trade associations receive no media attention other than Reuters.
The Hang Seng and Hang Seng Tech index were mixed -0.03% and +0.05%, respectively, on volume -17.12% from Friday, which is 94% of the 1-year average. 112 stocks advanced, while 374 declined. Main Board short turnover declined by -12.23% from Friday, which is 88% of the 1-year average as 16% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). All factors were negative as large caps and growth fell less than small caps and value. The top sectors were financials, up +0.29%, communication services, up +0.24%, and consumer discretionary, up +0.18%, while utilities, down -3.27%, energy, down -1.87%, and real estate, down -1.18%. The top sub-sectors were food/staples, semiconductors, and automobiles, while energy, telecommunications, and real estate were the worst. Southbound Stock Connect volumes were light/moderate as Mainland investors bought $483 million of Hong Kong stocks and ETFs. Tencent was a moderate/small net buy, while Brilliance Auto was a small net sell.
Shanghai, Shenzhen, and STAR Board were mixed -0.55%, +-0.05%, and +0.38%, respectively, on volume -11.27% from yesterday, which is 89% of the 1-year average. 1,538 stocks advanced, while 3,393 declined. Growth and small caps managed a positive return, while value and small caps posted negative returns. The top sectors were technology, up +1.37%, industrials, up +0.46%, and consumer discretionary, up +0.26%, while real estate, down -2.07%, energy, down -1.87%, and materials, down -0.89%. The top sub-sectors were motorcycles, automobiles, and semiconductors, while coal, forest, and steel were the worst. Northbound Stock Connect volumes were light as foreign investors were net sellers of Mainland stocks. CNY and the Asia dollar index were basically flat. Treasury bonds fell. Copper and steel were down.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.25 versus 7.25 Friday
- CNY per EUR 7.77 versus 7.76 Friday
- Yield on 10-Year Government Bond 2.26% versus 2.25% Friday
- Yield on 10-Year China Development Bank Bond 2.37% versus 2.37% Friday
- Copper Price -1.00%
- Steel Price -0.60%
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