Mainland China & Hong Kong Outperform Asia As Buyback Bonanza Continues

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Key News

Asia was a sea of red except for Mainland China and Hong Kong following US tech’s drawdown and the continuing crisis in the Middle East.

Washington’s political dysfunction eased with a House Speaker appointed with the next budget deadline on the horizon. Both Mainland China and Hong Kong opened lower but managed to grind higher though on light volumes as many investors stayed on the sidelines.

As mentioned yesterday, macroeconomic events are raining on our parade, though our green shoots on US-China diplomatic relations thesis is playing out with Governor Newsom’s meeting with President Xi, which was followed by reports that Foreign Minister Wang Yi will meet with President Biden and Secretary of State Blinken. If a Biden-Xi summit occurs in San Francisco at APEC in a few weeks, the symbolism of Xi going to the US in order to meet with Biden could ease tensions significantly.

One catalyst that turned the Mainland market around was foreign buying via Northbound Stock Connect for the first time in over a week, though it feels like a year! Yes, only $167 million of net buying, so we can curb our enthusiasm to some degree. One purchase by foreign investors was Aier Eye Hospital, which announced a large stock buyback of RMB 200 million to 300 million despite mixed financial results, joining a list of 200 Mainland companies announcing buybacks in October. Companies that have announced major shareholders buying more than RMB 1 billion include SOE banks (ABC, ICBC, CCB), construction company Powerchina, conglomerates Funeng and Youngor, semiconductor manufacturer Will Semiconductor, real estate developer Huafa Industrial, and steel company Jiuli.

Shanghai and Shenzhen remain below our “lines in the sand” of 3,100 and 1,900, respectively, though made a small move higher, to close at 2,988 and 1,825. The Hang Seng was off -0.24%, though the Hang Seng Tech index gained +0.31% on light volumes and poor breadth. Hong Kong-listed internet stocks outperformed their US-listed counterparts, posting small gains as this Singles Day event is starting to hit investors’ radar. Sport shoe and apparel company Li Ning (2331 HK) was crushed to close -20.7% as Hong Kong’s most heavily traded stocks by value after missing analyst expectations and revising their outlook lower. Mainland investors bought Li Ning’s dip via Southbound Stock Connect. A head scratcher was the price action of EV automaker Leapmotor, which fell-10.87% after global auto giant Stellantis announced buying a 20% stake for $1.1 billion. Considering how awful Asia did overnight, we’ll take today as a win.

The Hang Seng and Hang Seng Tech diverged to close -0.24% and +0.31%, respectively, on volume that decreased -15.36% from yesterday, which is 71% of the 1-year average. 169 stocks advanced, while 301 declined. Main Board short turnover declined -11% from yesterday, which is 78% of the 1-year average (remember Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The value factor outperformed the growth factor, while large caps outpaced small caps. The top sectors were financials +0.48%, utilities +0.34%, and industrials +0.26%, while healthcare -1.97%, real estate -1.44%, and materials -0.92%. The top sub-sectors were food/staples, telecom service, and utilities, while consumer durables, semis, and pharmaceuticals were the worst. Southbound Stock Connect volumes were light as Mainland investors bought +$284 million of Hong Kong stocks and ETFs, with Li Ning a moderate/large net buy and Meituan a small/moderate net buy while Tencent was a small net sell.

Shanghai, Shenzhen, and the STAR Board gained +0.48%, +0.45%, and +0.08%, respectively, on volume that declined -3.56% from yesterday, which is 96% of the 1-year average. 2,230 stocks advanced, while 2,565 declined. The value factor outpaced the growth factor, while large caps outperformed small caps. The top sectors were utilities +2.12%, healthcare +0.99%, and discretionary +0.57%, while real estate -0.94%, energy -0.37%, and tech -0.33% were the worst. The top sub-sectors were communication equipment, auto parts, and the auto industry, while chemicals, building materials, and motorcycles were the worst. Northbound Stock Connect volumes were light/moderate as foreign investors bought +$167 million of Mainland stocks with IFLYTEK moderate/light net buy, BYD, Agricultural Bank of China, and Aier Eye Hospital small net buys while Kweichow Moutai was a moderate/small net sell, CATL and Will Semiconductor were small net sells. CNY and the Asia dollar index were off small versus the US dollar index. Treasury bonds were sold while copper was off, and steel gained.

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Last Night’s Performance

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Last Night’s Exchange Rates, Prices, & Yields

CNY per USD 7.31 versus 7.31 yesterday
CNY per EUR 7.70 versus 7.73 yesterday
Yield on 10-Year Government Bond 2.71% versus 2.70% yesterday
Yield on 10-Year China Development Bank Bond 2.76% versus 2.76% yesterday
Copper Price -0.34% overnight
Steel Price +0.16% overnight