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Asian equities were lower on light volumes as investors wait for confirmation from the US Fed’s two days of meetings. The assumption is that US interest rates will remain higher for longer following strong US economic data.
The US dollar’s strength weighed on the Asia dollar index overnight. Hong Kong and Mainland China were both off, though growth stocks in both markets held up better than most, led by semiconductor stocks and tech following Apple’s World Developers Conference and its AI rollout, which will likely require you to buy a new phone (again). Weakness was attributed to the three-day weekend celebrating the Dragon Boat Festival, though domestic trips increased by +6.3% year-over-year (YoY) to 110 million, with domestic travel revenue up by +8.1% YoY to RMB 40.35B while “total cross-regional personnel flow,” which I assume is domestic and international trips coming and going, over the three days totaled 647 million trips, which is an increase of +9.4% YoY and +44.1% versus 2022.
Kweichow Moutai fell -3.1% on reports that rural farmers nicknamed “old yellow cattle” were less than enthusiastic buyers of the fiery drink and the online versus offline price disparities. A weighing factor on Kweichow Moutai and Mainland stocks was the large, approximately $1 billion, net selling of Mainland stocks from foreign investors via Northbound Stock Connect. The selling could be the result of new rules governing quantitative trading that will be released soon following January’s China Quant Quake and derivative-induced stock meltdown.
Real estate was off by -1.1% in China and -0.84% in Hong Kong after a developer went bankrupt, which no one had ever heard of. This is despite Premier Li attending an economic meeting that included real estate as a topic. Hong Kong’s most heavily traded were Meiutan, which closed higher by +4.44% with an after-the-close announcement of a $2 billion stock buyback, Tencent, down -0.27%, Alibaba, down -0.84%, AIA, down -1.97%, and China Construction Bank, down -2.12%. COSCO Shipping was down -12.9% in Hong Kong and down -10.01% in China on reports of Middle East peace talks that could lower shipping costs. The Red Sea is the real culprit causing high shipping costs as container ships add time by rounding Africa.
Electric vehicle/auto stocks were weak on potential EU import tariffs, though they are apt to be at the bottom of the range, which is 10%, versus the high of 25% due to Chinese airline’s appetite for Airbus airplanes. After the close, May auto sales were reported at 1.71 million, including 804,00 NEVs (battery and plug-in hybrid), an increase of +38.5% YoY, accounting for 47% of total sales. The strong release beat estimates handily following a weak April. Pre-US market open, Zeekr (ZR US) reported better than estimated financial results including a smaller loss.
The Hang Seng and Hang Seng Tech fell -1.04% and -0.45%, respectively, on volume +5.03% from Friday, which is 137% of the 1-year average. 75 stocks advanced, while 416 declined. Main Board short turnover increased by +20.38% from Friday, which is 126% of the 1-year, 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 small caps and growth stocks “outperformed”/fell less than large caps and value stocks. Consumer discretionary was the only positive sector after closing higher at +0.31%, while materials fell -5.19%, industrials fell -4.71%, and fell utilities -3.38%. The top sub-sectors were semiconductors and retailing, while transportation, materials, and capital goods were the worst. Southbound Stock Connect volumes were moderate/high as Mainland investors bought a healthy $1.31 billion of Hong Kong stocks and ETFs, with the HK Tracker ETF, a large net buy, and Tencent, a moderate/small net buy, while COSCO Shipping was a small net sell.
Shanghai, Shenzhen, and STAR Board were mixed -0.76%, +0.29%, and +2.43%, respectively, on volume -2.08% from Friday, which is 83% of the 1-year average. 2,423 stocks advanced, while 2,468 declined. The growth factor and small caps posted a positive return, while value and large caps underperformed. The top sectors were technology, up +1.21%, healthcare, up +0.54%, and consumer discretionary, up +0.14%, while consumer staples were down -2.4%, energy was down -2.13%, and industrials were down -1.89%. The top sub-sectors were semiconductor, education, and computer hardware, while marine/shipping, precious metals, and liquor were the worst. Northbound Stock Connect volumes were moderate/high as foreign investors were net sellers of Mainland stocks with Cypc, Sevenstar, and COSCO Shipping small net buys while Kweichow Moutai was a large net sell, Midea Group a moderate/small net sell and Ping An was a small net sell. CNY and the Asia dollar fell a little versus the US dollar. Copper and steel fell.
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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 7.78 versus 7.84 Friday
- Yield on 10-Year Government Bond 2.27% versus 2.28% Friday
- Yield on 10-Year China Development Bank Bond 2.39% versus 2.39% Friday
- Copper Price -1.04%
- Steel Price -0.53%
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