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Asian equities were mixed overnight, as Hong Kong outperformed, and Mainland China is closed until Monday for the Labor Day vacation.
Today’s strong Hong Kong rally was led by growth stocks and sectors on strong volume, which was 118% of the 1-year average, and good breadth, as advancers outnumbered decliners by 4 to 1. It is impressive as it occurred with Mainland China closed and no Southbound Stock Connect flows. Chinese financial media heavily covered Fed Chair Powell’s speech and the recent weakness in US stocks. We have argued that a China rally could be fueled by investors taking a piece of their US technology stock profits and/or overweight to Japan and India and rolling into low-valuation Chinese equities. The rally should be making underweight professional investors a little bit nervous.
Tuesday’s Politburo release included amplification of housing policy support, stating the need to “study policies for reducing existing housing stock.” Numerous Chinese cities have removed their home purchase restrictions in the last week. The release acknowledged the economy’s challenges, suggesting policy to stimulate should be coming with July’s Third Plenum on the horizon. There is no policy bazooka/free money, but clearly, it is much more vocal.
Hong Kong’s most heavily traded stocks by value were Tencent, which gained +3.8%, Meituan, which gained +8.77%, Alibaba, which gained +2.35%, AIA, which gained+2.68%, and Sense Time Group, which gained +36.07% after its AI/Chatbot announcement (It is amazing that the stock hit its 52-week low on April 19th at HKD 0.58 versus today’s close of HKD 1.66). Growth stocks favored by investors performed well, especially internet stocks, including JD.com, which gained +4.88%, Kuaishou, which gained +5.81%, Baidu, which gained +0.76%, and Bilibili, which gained +4.18%. However, NetEase was off -0.13%. Electric Vehicle (EV) stocks had a strong day after the release of April sales figures, as BYD was up +4.36% with 313,245 NEVs (hybrid and EV) sold, Xiaomi was up +1.85% with 7,058 sold, Li Auto up +3.46% with 25,787 sold, XPeng up +8.24% with 9,393 sold, and NIO up +20.7% with 15,620 sold!
Golden week travel numbers look strong, with 20 million high-speed rail passengers traveling yesterday and another 17 million today. New policy providing subsidies for auto trade, China’s “cash for clunkers” program, is a clear catalyst despite cries of “over capacity.”
Trip.com was up only +0.93%, while Tongcheng Travel fell -0.48%, though Macau stocks had a good day.
Overwhelmed by Western financial media coverage of China’s rally? This is despite healthy gains on an absolute basis especially versus US stocks. The pain trade is higher, in my opinion, due to low investor positioning.
The Hang Seng and Hang Seng Tech indexes gained +2.50% and +4.45%, respectively, on volume thet decreased -11.42% from Tuesday, which is 118% of the 1-year average, as 13% of turnover was short turnover. 374 stocks advanced, while 118 declined. Main Board short turnover declined -4.05% from Tuesday, which is 89% of the 1-year average, as 13% of turnover was short turnover (remember HK short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). All factors were positive with growth and small caps outpacing value and large caps. The top-performing sectors were Real Estate, which gained +5.31%, Health Care, which gained +4.57%, and Consumer Discretionary, which gained +3.69%. Meanwhile, Utilities and Energy fell -0.51% and -2.12%, respectively. The top-performing subsectors were pharmaceuticals/biotech, retail, and auto, while nuclear power, oil, and telecom were among the worst-performing.
Southbound Stock Connect was closed today.
Shanghai, Shenzhen, and STAR Board were closed today.
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