Key News
Asian equities had a strong night led higher by Mainland China, Hong Kong, and Japan while Taiwan underperformed.
“Jia you”, literally translated as add oil, i.e., step on the gas, is the chant of Chinese table tennis fans at the Olympics This has also been our advice to Chinese policymakers, in a nutshell. It appears that the message was heard overnight, as Mainland China and Hong Kong’s strong rally was driven by growth stocks and sectors on very high volumes, due to today’s mid-morning Ministry of Finance (MoF) press conference, which was led by Wang Dongwei, the Vice Minister of Finance. The press conference was intended to “introduce the relevant situation of fiscal support for promoting high-quality development” following yesterday’s Politburo release. Wang outlined four areas of focus, followed by a Q&A.
What did he say that sparked today’s rally?
- He gave an overview of past “proactive fiscal policies” and tax policies
- “This year, we will further improve… focusing on supporting scientific and technological innovation and the development of the manufacturing industry.”
- This will be done knowing “rationally and prudently to determine the deficit ratio, using local government special bonds, treasury bonds, and other tools”
- His second focus was on improving “people’s livelihood” to “use more financial resources to promote development and protect people’s livelihood”
- His third focus was on “deepening fiscal and taxation system reform” and “injecting momentum and vitality into high-quality development”
- His fourth focus was on “promoting high-level opening up”
- The summary sentence stated that the Ministry of Finance will implement policies to “continuously strengthen fiscal macro-control, deepen fiscal and taxation system reform”
- In the Q&A on tax reform, he mentioned “moving the collection of consumption tax backward and steadily delegating it to local governments”
- In the Q&A on fiscal policy, he said it will be “moderately strengthened, and the quality and efficiency will be improved.”
Following the Third Plenum, such policies will “intensify the implementation of policies, and promote the sustained recovery of the economy.” How?
1) The government will “issue and use the ultra-long term special treasury bonds”
2) The government will also “promote the large-scale equipment upgrades and replacement of old consumer goods with new ones.” RMB 300B already issued.
3) It will then “Implement fiscal and taxation policies”
4)After, it will seek to “strengthen the management of fiscal revenue and expenditure.”
In the Q&A, he also reiterated the focus on “scientific and technological innovation” and “support for a new round of large-scale equipment renewal and trade-in of consumer goods.” He also said, “we will focus on boosting investment and consumption confidence.”
Separately, the State Council released a five-year urbanization action plan focused on implementing “a new round of urbanization of rural migrant population” through “incentive policies”. Like me, investors see how creating demand might help the real estate supply problem, as the sector gained +4.98% and +2.19% in Mainland China and Hong Kong, respectively.
No one cared about July’s Manufacturing PMI of 49.4 versus estimate 49.4 and June’s 49.5 nor the Non-Manufacturing PMI of 50.2 versus estimate 50.3 and June’s 50.5. As our trader friend David says, “market no care, you no care”.
A Reuters report that Biden’s semiconductor export controls will exempt certain allies, thus “limiting the impact of the rule” also helped sentiment overnight.
Hong Kong’s most heavily traded stocks overnight were Tencent, which gained +2.43% on very strong buying via Southbound Stock Connect, Alibaba, which gained +1.44%, HSBC, which gained +4.64% on strong quarterly financial results and a $3 billion buyback announcement, Meituan, which gained +2.73%, and energy giant CNOOC, which gained +2.91%. I am a little surprised that JD.com only gained +1.76% and did not do better, considering their focus on home appliances. Interestingly, Southbound Connect was a net buy though the Hong Kong Tracker ETF and the Hang Seng Tech ETF were net sells.
Mainland China had a strong day with remarkably only 229 declining stocks versus 4,813 advancing stocks, as foreign investors were net buyers of Mainland stocks via Northbound Stock Connect. China’s bond market noticed the pro-economy policies as the Treasury curve steepened. Investors’ positioning in China appears weak, as two of the largest US- listed China ETFs have seen shares outstanding fall -26.12% and -15.68%, respectively, this month! Could this be a recipe for another rally?
The Hang Seng and Hang Seng Tech indexes gained +2.01% and +3.01%, respectively, on volume that increased +32.11% from yesterday, which is 116% of the 1-year average. 460 stocks advanced while 37 stocks declined. The Main Board short turnover declined -3.23% from yesterday, which is 81% of the 1-year average, as 12% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging).The growth factor and small caps outperformed the value factor and large caps. All sectors were positive, except for Utilities, which fell -0.8%. The market was led higher by Health Care, which gained +4.1%, Consumer Staples, which gained +4.04%, and Technology, which gained +3.77%. The top-performing subsectors were pharmaceuticals, semiconductors, and diversified financials. Meanwhile, Utilities constituted the only negative subsector. Southbound Stock Connect volumes were moderate as Mainland investors bought a net $292 million worth of Hong Kong-listed stocks and ETFs, including Tencent, which was a very large net buy, and Meituan, which was a moderate net buy. Meanwhile, the Hong Kong Tracker ETF was a very large net sell and the Hang Seng Tech ETF was a large net sell.
Shanghai, Shenzhen, and the STAR Board gained +2.06%, +3.29%, and +4.7%, respectively, on volume that increased +50.55% from yesterday, which is 111% of the 1-year average. 4,813 stocks advanced while 229 declined. The growth factor and small caps outperformed value and large caps. All sectors were positive, except for Utilities, which fell -1.09%. The top-performing sectors were Real Estate, which gained +4.96%, Health Care, which gained +4.76%, and Consumer Discretionary, which gained +4.21%. The top-performing subsectors were restaurants, biotech, and brokers. Meanwhile, telecom, land transportation, and water industry were among the worst-performing. Northbound Stock Connect volumes were high as foreign investors were net buyers of Mainland stocks. The Treasury curve steepened. CNY and the Asia Dollar Index both had strong days versus the US dollar. Copper gained while steel fell.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.22 versus 7.25 yesterday
- CNY per EUR 7.82 versus 7.86 yesterday
- Yield on 10-Year Government Bond 2.15% versus 2.15% yesterday
- Yield on 10-Year China Development Bank Bond 2.22% versus 2.22% yesterday
- Copper Price: +0.16%
- Steel Price: -0.75%
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