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Key news
Asian shares were significantly higher as Taiwan and South Korea outperformed. Mainland China and Hong Kong had choppy sessions, bouncing around the room to post small gains on heavy volumes that were above their 1-year averages.
Despite the heavy volumes, it was a quiet night ahead of the release of key economic targets and implementation policies following the meetings of China’s “Two Sessions”, consisting of the Chinese People’s Political Consultative Conference (CPCC), which began today, and the National People’s Congress (NPC). , which will start tomorrow. Expectations are for a 2024 GDP target of 5%, a budget deficit of 3%, RMB 1 trillion in government bond issuance, continued emphasis on real estate prices and the sector as a whole, and supportive fiscal and monetary policy. Consumption policy support will be focused on cars and household appliances based on recent government announcements and their relative weakness compared to services and lower-value goods. Anything above that will be an upside surprise. Premier Li will provide a reading of the government’s economic assessment, but will not provide a Q&A after the Two Sessions, breaking a thirty-year tradition. It will be difficult to know the rationale for the decision, although it provides fodder for the chattering nabobs of negativity.
Healthcare had a strong day, gaining +1.53% in Mainland China and +3.56% in Hong Kong, with tech gaining +1.01% in Mainland China and +1.87% in Hong Kong as likely recipients of additional political support from both sessions. Hong Kong’s top-traded stocks by value were Meituan, which gained +3.51%, Xpeng, which fell -4.63% after a price cut announcement, Li Auto, which followed the electric vehicle ecosystem lower and closed down -10.71%, Tencent, which fell -0.43%, Alibaba, which fell -1.3%, energy giant CNOOC, which gained +3.34%, and Wuxi Biologics, which gained +11 .7% due to speculation about the Two Sessions policy.
The real estate sector was the worst performer in both markets, falling -3.12% in mainland China (only 11 mainland stocks in MSCIMSCI indices) and -4.19% in Hong Kong (only 10 stocks in the MSCI indices), following a rumor that SOE developer Vanke ran into trouble with a loan from a mainland asset manager that was subsequently turned down. Vanke’s short-dated bonds were flat, although longer maturities sold off. The South China Morning Post noted that Henderson Land, a Hong Kong-based developer, traded flat after selling 138 units in 4 hours with 30 buyers and 4,400 inquiries per unit. Hong Kong recently removed restrictions on property prices, which included stamp duty for non-residents. The move likely marks the bottom of Hong Kong’s property market and the headlines of the infamous Peak Hong Kong estates selling at cut prices. It is worth noting that mainland China managed to make small gains, although foreign investors sold $980 million worth of mainland-listed shares through Northbound Stock. It also shows that the national team took a day off.
Last week, we touched on comments by US politicians and subsequent headlines about raising already sky-high tariffs to prevent Chinese EVs from being imported into the US. The Financial Times has an interesting take on the subject, noting that Chinese EVs and hybrids have seen strong sales globally, up +36% in 2023 to 7.7 million units from 5.7 million in 2022. Why the strong sales? “They are just good cars and people buy them,” according to Matthias Midreich, CEO of Umicore. After riding in a BYD EV minivan in Shenzhen, I would agree with their comment about the quality of the vehicles. It seems strange that American automakers don’t partner with Chinese car companies or license their technology. Overlooked in the EV debate is the success of Chinese automakers’ plug-in hybrids, as BYD’s February 2024 sales were 43,000 EVs and 66,000 plug-in hybrid EVs. I had the opportunity to check out several BYD EVs and hybrid SUVs, which were exceptional looking cars. Chinese hybrids (or their technology leased to US automakers) will solve the reason EVs have limited sales in the US. The US is a big country, which means long drives and families larger than 4 can’t fit comfortably in a sedan. Despite the recent spring weather here in the New York area, the cold weather still has an adverse effect on most batteries.
The Hang Seng and Hang Seng Tech diverged to close higher by +0.04% and -0.38% respectively on volume that was down -12.28% from Friday, 108% of its average for 1 year. 205 stocks advanced while 271 declined. Short turnover on the Main Board is down -3.76% since Friday, which is 112% of the 1-year average, as 18% of the turnover was short turnover (remember that short turnover in Hong Kong includes short ETF volume which is managed by market maker hedge ETFs). The growth factor and large caps outperformed the value factor and small caps. The best performing sectors were healthcare which gained +3.56%, energy which gained +1.99% and technology which gained +1.87%. Meanwhile, Real Estate fell -4.39%, Consumer Discretionary fell -1.03% and Financials fell -0.84%. The best performing sub-sectors are pharmaceuticals, energy and household products. Meanwhile, autos, food and consumer services were among the worst performers. Southbound Stock Connect volumes were strong as mainland investors bought a net worth of $468 million in Hong Kong-listed stocks and ETFs, including ZTO, which was a small net buy, Meituan and CNOOC, which were large net buys. Meanwhile, Li Auto had very large net sales, and China Merchants Bank and Tencent had very small net sales.
Shanghai, Shenzhen and STAR Board gained +0.41%, +0.18% and +0.37% respectively on a turnover that was up +2.14% from Friday, 124% from its 1-year average . 2,011 shares advanced while 2,930 shares declined. The growth factor and large caps outperformed the value factor and small caps. The best performing sectors were Energy which gained +3.17%, Utilities which gained +2.38% and Healthcare which gained +1.53%. Meanwhile, real estate fell -3.12%, financials fell -1.06% and consumer staples fell -0.8%. The best performing sub-sectors are oil and gas, pharmaceuticals and coal. Meanwhile, real estate, insurance and diversified financials were among the worst performers. Northbound Stock Connect volumes were moderate as foreign investors sold mainland stocks worth -$980 million net, including WuXi AppTec, Foxconn and LONGi Green Energy. However, appliance makers Midea, Gree and Sevenstar were small net buyers. Wuxi AppTec had small net sales, Foxconn and Longi Green Energy had moderate net sales. The CNY was small against the US dollar, while the Asian dollar index posted a small gain. Government bonds rose. Copper saw a small gain while steel fell.
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Last night’s performance
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Exchange rates, prices and yields from last night
- CNY at 7.20 USD vs 7.20 on Friday
- CNY at 7.82 euros versus 7.80 on Friday
- 1-day Treasury yields 1.47% vs. 1.44% on Friday
- 10-year Treasury yield 2.35%, up from 2.37% on Friday
- China Development Bank 10-year bond yield 2.48%, up from 2.50% on Friday
- Copper price +0.04%
- Steel price -1.21%
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