Review of the week
- Health care gained on Monday as China continues to battle covid-19 outbreaks with the city of Xian in lockdown, driving increased demand for tests and vaccines.
- The spin from growth to value landed in Asia on Tuesday as the Shanghai Composite fell -1.06% and value stocks outperformed across the region.
- Dovish comments from U.S. Fed Chairman Powell on Tuesday led to a rally in Asian equities on Wednesday as investor risk appetite increased globally after a lagged start to the week.
- Thursday’s market downturn left investors wondering what the PBOC’s stimulus timeline might be. We know there will be easing this year, but not when or in what form.
Friday’s key news
Asian stocks fell overnight, with Japan, South Korea and Australia all losing more than -1%.
China’s trade data in December was strong and far exceeded expectations. The data proves how well businesspeople get along overall compared to politicians. However, the General Administration of Customs was cautious in its outlook for 2022, saying domestic consumption is to take over from export-led manufacturing in 2022 as global government stimulus measures are eased. The release was not an emotional event in the market as market sentiment felt the brunt of China’s ongoing coronavirus outbreaks.
Numerically, the number of cases in China is low, but seeing the virus appear in several cities, including Shanghai, weighs on sentiment as investors recognize that the response may be significant lockdowns, as seen currently in Xian.
Fourth quarter and 2021 GDP data will be released on Sunday along with industrial production, retail sales and fixed asset investment (FAI).
The Hang Seng Index was down -0.19% after rebounding at the close to mitigate losses on volume which was -12% lower than yesterday, or 73% of the 1-year average. Hong Kong-listed internet stocks were down, but not as much as yesterday’s selloff in the US, leading to a rebound in US trading today. Alibaba HK was down -2.19%, well above the intraday low of -4.24% on reports that asset manager China Cinda will not increase its stake in Ant Financial. Tencent fell -0.38% and Meituan -2.48% although both had small net buying from mainland investors via Southbound Stock Connect.
There was some chatter and a Bloomberg article about how US ADRs seem to be performing worse than their Hong Kong-listed peers during the day. However, the names tend to catch up with each other, so it’s not entirely true, but we’ve talked about how meaningless media stories tend to weigh heavily on US stocks. Despite how embarrassing delisting can be, maybe these companies belong in Asia for that reason.
Hong Kong-domiciled companies such as AIA, which gained +2.18%, HSBC, which gained +1.68%, and Macau gaming stocks had a good day although these names are not considered as Chinese stocks because they are part of MSCI Hong Kong, which is in MSCI’s Developed Markets Index Suite, and not MSCI China, which is in MSCI’s Emerging Markets Index Suite. It makes very little sense to me.
Mainland China saw an interesting divergence as Shanghai fell -0.96%, Shenzhen gained +0.02% and the STAR Board gained +1.36% on volume up +0.93% 104% of the 1-year average as declines outpaced equities up 2-1 from yesterday. The only positive sectors were technology, which gained +1.09%, and healthcare , which gained +0.86%. CATL rebounded +2.19% with semiconductors, broader technology sub-sectors and parts of the cleantech ecosystem such as lithium and rare earths.
Financial services, energy and real estate fell -2.26%, -3.11% and -3.16%, respectively, on the continent. Overseas investors bought $44 million worth of Mainland stocks today via Northbound Stock Connect, bringing the weekly total to $1.17 billion in net inflows. Chinese Treasuries were mostly flat, the Chinese currency appreciated to 6.35 and copper was down -0.63%.
Michael Shuman Interrupted Superpower provides a comprehensive account of Chinese history beginning over 2,000 years ago. It is a good read for those who are curious about the history of China as it explains how Asian civilization, such as what happened in the Middle East, Africa and the Americas, developed for thousands of years without contact with Europe other than certain exchanges via the Silk Road. . By the time Marco Polo arrived in China in the 1200s, China had been unified for over a thousand years. The fact is that Europe and subsequently America were brought up in Greek, Roman and European history, religion and values, which were simply different from those of India’s upbringing, China, Japan and Asia. European countries, and to a lesser extent the United States, imposed themselves and their culture on China during the Opium Wars, similar to the colonialism that took place in India, Africa and Latin America. . I don’t want to say too much. The book spends a lot of time on the different dynasties while the key to understanding how Macao, Hong Kong and Taiwan were taken over by foreign powers (Portugal, Britain and Japan) are the Opium Wars. There is very little examination of the United States‘ involvement in this period although it continues to play a role in politics today.
Last night’s exchange rates, prices and yields
- CNY/USD 6.35 vs. 6.36 yesterday
- CNY/EUR 7.27 vs. 7.29 yesterday
- Overnight government bond yield 1.87% vs. 1.90% yesterday
- 10-year government bond yield 2.79% vs. 2.79% yesterday
- China Development Bank 10-year bond yield 3.08% vs. 3.08% yesterday
- Copper price -0.63% overnight