Key News

Asian equities were largely lower, though Japan had a very strong day, and India had a small gain on a very quiet night.

Hong Kong and Mainland stocks opened higher but slid to small losses, with sentiment remaining poor as investors focused elsewhere (US tech, US stocks, Japan, India). The South China Morning Post reported that this is the worst start for the Hong Kong market since 2005, as Hong Kong posted its seventh straight down day without a positive day in 2024. The big positive today was Hong Kong did not fall as much as US-listed China stocks did yesterday, so we are seeing a small rebound in some names in US trading today.

It is also feasible that investors are waiting for Taiwan’s election results, though the current party is favored to win as the two opposing parties could not agree on which of their candidates would be President and Vice President.

There were several positives that had no effect on the market as policymakers have not given investors what they want: strong policy support. Mainland Chinese and Hong Kong indices are at crucial support levels that warrant a decisive move from the government. They need to stop talking about cutting rates and actually do it!

Mainland auto stocks were off despite the National Passenger Car Information Exchange Association reporting that December 2023 passenger car sales increased +8.5% year-over-year (YoY) to 2.35 million, which brings the 2023 total to 21.69 million cars (+8.5% YoY). New energy vehicles (hybrid, electric, and hydrogen vehicles) sales increased by +47.3% YoY to 945,000, with the 2023 total now at 7.73 million (+36.2% YoY). The long-worded association believes Mainland China’s auto production can reach 40 million units “in the future”. Electric vehicle (EV) stocks were off in both Hong Kong and Mainland China as investors focused on competition, rather than the expansion of the pie.

Politico reported that Chinese military officials visited their counterparts at the Pentagon on the first visit to DC since January 2020. Makes sense to me!

Technology stocks were off in both Hong Kong and Mainland China despite the Ministry of Industry and Industrial Technology (MIIT), in conjunction with thirteen other government agencies, announcing further support for China’s 5G, broadband, and optical networks.

Bloomberg News had a positive article on the distressed real estate firms Vanke and Longfor making bond payments. Mainland China-listed equity ETFs have not seen outflows despite reports that fund families can increase the amount of redemptions. I’ve heard active funds have struggled to add “alpha” versus their benchmarks as investors gravitate to ETFs in Mainland China. Hong Kong’s most heavily traded stocks by value were Tencent, which fell -1.2% despite a 1.79 million share buyback today, Alibaba, which fell -0.65%, Meituan, which gained +1.7%, AIA, which fell -1.81%, and Wuxi Biologics, which gained +6.26% after announcing 2023 financials “remained strong” and that it is “confident about achieving solid growth in 2024”. Treasury bonds took a breather from their rally on profit-taking. CNY and the Asia Dollar Index were off small versus the US dollar despite US 10 Year Treasury yield dipping below 4%.

I’m clearly frustrated. At times like this, I need to summon my inner Charlie Munger and Warren Buffett, who sat on their BYD investors for ten years before the stock rallied tremendously. This feat involved incredible patience and fortitude on their part. It then became one of their most successful investments. I remain confident that investors globally have made US stocks, especially US tech stocks, the most crowded trade after 14 years of outperformance versus non-US equities. Remember, this sentiment in 2009 was expressed toward US stocks after a decade of negative returns and two -50% drawdowns. Investors giving up on US stocks laid the foundation for the bull market. Is it possible that investors giving up on non-US stocks, including Chinese stocks, has laid the foundation for a bull market?

The Hang Seng and Hang Seng Tech indexes fell -0.57% and -0.76%, respectively, on volume that decreased -9.03% from yesterday, which is 72% of the 1-year average. 177 stocks advanced, while 296 declined. Main Board short turnover declined -13.62% from yesterday, which is 67% of the 1-year average, as 16% of turnover was short turnover (remember Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The growth factor and small caps “outperformed” (i.e. fell less than) the value factor and large caps. Health Care was the only positive sector, gaining +3.02%, while Materials and Industrials both fell -1.07% and Technology fell -1.01%. The top-performing subsectors were pharmaceuticals and consumer durables. Meanwhile, Foodstuffs, Autos, and Transportation were among the worst-performing. Southbound Stock Connect volumes were light/moderate as Mainland investors bought a net $328 million worth of Hong Kong-listed stocks and ETFs with the Hong Kong Tracker ETF, HS Tech, and CCB moderate net buys, while Tencent, SMIC, Li Auto, and East Buy were small net sells.

Shanghai, Shenzhen, and the STAR Board fell -0.54%, -0.76%, and -0.74%, respectively, on volume that decreased -4.18% from yesterday, which is 74% of the 1-year average. 1,102 stocks advanced, while 3,725 declined. The growth factor and small caps “outperformed”/fell less than the value factor and large caps. The top sectors were staples +0.16%, discretionary +0.12%, and industrials +0.02%, while communication -2.52%, healthcare -0.98%, and tech -0.89%. The top sub-sectors were chemicals, soft drinks, and food, while internet, cultural media, and office supplies were the worst. Northbound Stock Connect volumes were moderate/light as foreign investors bought $96 million of Mainland stocks with Wuxi AppTec, Sungrow, and Zhifei Biological small net buys while Cypc, Kweichow Moutai, and Longi Green Energy were small net sells. CNY and the Asia dollar index were off small versus the US dollar. Treasury bonds fell along with copper and steel.

Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

  • CNY per USD 7.16 versus 7.16 yesterday
  • CNY per EUR 7.84 versus 7.83 yesterday
  • Yield on 10-Year Government Bond 2.49% versus 2.48% yesterday
  • Yield on 10-Year China Development Bank Bond 2.70% versus 2.69% yesterday
  • Copper Price -0.35%
  • Steel Price -0.86%

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