Week in Review
- Asian equities had a decent performance week as Mainland China markets were a bright spot with the STAR Market’s “688 Rally” mid-week on stock market reforms that included lowering transaction costs.
- E-Commerce giant Pinduoduo beat analyst estimates in its Q2 earnings, reported Tuesday, another sign that the consumer is spending more than expected.
- China’s central bank guidance is now leading to lower mortgage rates, following up on a cut to the 5-year medium-term lending facility (MLF) earlier in August.
- US Commerce Secretary Gina Raimondo completed her trip to China this week, which included visits to Beijing and Shanghai and her counterparts in China’s government as well as US businesses.
Friday’s Key News
Asian equities ended a positive week higher except for Hong Kong, which was closed due to Super Typhoon Saolo. Shanghai and Shenzhen posted small gains on light volume as the STAR Board’s “688 Rally” saw profit- taking.
Once again, there were positive catalysts today as the Caixin Manufacturing PMI beat expectations of 49 with a release of 51, indicating month-over-month expansion. Although most categories improved, including output and new orders, new export orders remain weak, a symptom of the global economic slowdown. Can we trust the data? The Caixin survey is conducted by IHS Markit
INFO
Beijing joined the growing list of cities, which includes Shanghai, Shenzhen, and Guangzhou, that have reduced home purchase restrictions by changing the definition of a first-time home buyer. Meanwhile, current mortgage rates will be lowered. One example provided in Mainland financial media shows a mortgage loan rate of 5.75% being reduced to 4.20%. This is a significant change that puts money back in the pockets of citizens.
Are they going to deposit it in banks? To disincentivize this, starting today, the six largest banks’ deposit rates have been lowered to 0.10% from 1.55% for a one-year deposit. The 2-year deposit rate was lowered to 0.20% from 1.85%. The three and five-year deposit rates were lowered to 0.25% from 2.2% and 2.25%, respectively.
Mainland media noted that the lowering of mortgage rates is being done to raise consumer confidence. It has been our belief that with the Shanghai and Shenzhen Composites being below the 3,200 and 2,000 levels indicate that economic policy reforms will continue. Mainland-listed real estate stocks jumped +2.5% overnight.
The People’s Bank of China (PBOC), China’s central bank, lowered the foreign exchange deposit ratio from 6% to 4%, which lowers the amount of foreign currency that needs to be held. The Renminbi jumped higher versus the US dollar on the news, to close at 7.26 CNY per USD versus Wednesday’s close of 7.29.
It was a fairly quiet trading day, though it is a Friday in the summer so that is not overly surprising.
This morning, major electric vehicle (EV) manufacturers announced August deliveries BYD delivered 274,386 new energy vehicles (NEVs), representing an increase of +56.87% year-over-year (YoY). This total figure included 145,627 battery EVs and 128,459 plug-in hybrids. Nio, on the other hand, reported deliveries that declined -5.54% YoY to 19,329 vehicles. Xpeng reported a +42.93% YoY increase in deliveries to 13,690 vehicles. Lastly, Li Auto reported an impressive increase of +663% YoY to 34,914 vehicles!
The Hang Seng and Hang Seng Tech indexes were closed today.
Shanghai, Shenzhen, and the STAR Board diverged to close +0.43%, +0.31%, and -0.83%, respectively, on volume that decreased -10.3% from yesterday, which is 93% of the 1-year average. 2,400 stocks advanced while 2,273 declined. The value factor outperformed the growth factor as large caps outpaced small caps. The top-performing sectors were energy, which gained +3.57%, real estate, which gained +2.5%, and materials, which gained +2.37%. Meanwhile, communication services represented the only down sector, falling -0.61%. The top-performing subsectors were coal, insurance, and construction machinery. Meanwhile, computer hardware, environmental protection, and communication equipment were among the worst. Northbound Stock Connect was closed along with Hong Kong’s stock market. CNY and the Asia Dollar Index both gained versus the US dollar. Treasury bonds were sold while copper was lower and steel gained.
Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.26 versus 7.26 yesterday
- CNY per EUR 7.85% versus 7.87% yesterday
- Yield on 1-Day Government Bond 1.55% versus 1.65% yesterday
- Yield on 10-Year Government Bond 2.59% versus 2.56% yesterday
- Yield on 10-Year China Development Bank Bond 2.72% versus 2.69% yesterday
- Copper Price -0.01% overnight
- Steel Price +0.72% overnight
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