Key News
Asian equities were mixed overnight as Mainland China and Hong Kong underperformed.
We are seeing a slight comeback in US-listed China stocks this morning as Hong Kong internet stocks did not fall as far as their US-listed counterparts did on Friday. With more earnings this week, we could see a sustained correction higher.
Search engine Baidu and short video platform Kuaishou report Q2 results tomorrow and food delivery and local services giant Meituan reports on Thursday. We should expect to see striking rebounds in advertising revenue, as has been the case with both short-video platform Bilibili and Tencent in Q2 of this year. The year-over-year comparison is especially favorable for advertising this quarter, as China was just coming out of quarantines in multiple cities in Q2 2022. Advertising revenue relies on in-person activity, for the most part, which has come back in force, despite economic challenges often highlighted by the media.
The Wall Street Journal published an essay on China’s economic challenges over the weekend. While the article does a good job of explaining China’s issues, as per usual, the analysis of China’s debt did not consider the US’ 122% Government Debt to GDP ratio in 2022 compared to China’s 80%. China continues to be a net exporter of capital. Local debt is an issue, but the government can work with local governments and corporates to overcome it. Usually, foreign debts are the bigger concern for emerging economies, but China does not have that much foreign debt. Despite some selling, China continues to be one of the largest holders of US treasuries. It is a head-scratcher to me that media outlets in the US are once again calling for China’s “Lehman moment” even after they got it so wrong in 2021. Yes, China’s growth will no longer be at a breakneck pace. But the quality of growth is likely to be higher, concentrated in technology sectors and services.
Once again, Mainland investors bought over $1 billion worth of Hong Kong stocks while foreign investors sold just under $1 billion worth of Mainland stocks. Foreign investors need more stimulus to come in, while Mainland investors are betting on support for growth and technology through their Hong Kong buying.
The Hang Seng and Hang Seng Tech indexes both closed lower by -2.10% and -1.82%, respectively, on volume that increased +2% from yesterday. Mainland investors bought a net $1.2 billion worth of Hong Kong stocks via Southbound Stock Connect. Among the top traded names, real estate, energy, and financials were lower while technology was higher.
Shanghai, Shenzhen, and the STAR Board all closed lower by -1.24%, -1.00%, and -1.34%, respectively, overnight on volume that decreased -8% from yesterday. Foreign investors sold a net -$818 million worth of Hong Kong stocks via Northbound Stock Connect. Among the top traded names, materials and financials were lower while telecom outperformed.
Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.28 versus 7.28 yesterday
- CNY per EUR 7.93 versus 7.92 yesterday
- Yield on 1-Day Government Bond 1.40% versus 1.37% yesterday
- Yield on 10-Year Government Bond 2.54% versus 2.56% yesterday
- Yield on 10-Year China Development Bank Bond 2.65% versus 2.67% yesterday
- Copper Price -0.01% overnight
- Steel Price +0.05% overnight
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