Onshore and offshore diverge as Hong Kong short-term interest rises
Asian stocks fell overnight as the three markets that were closed on Monday, South Korea, Japan, Malaysia and Taiwan caught up, with China a rare regional bright spot.
The Fed and the US government are not making friends among global investors as the Fed’s interest rate hike wreaks havoc around the world as US restrictions on semiconductor exports hit Taiwan , which fell -4.35% as semiconductor heavyweight Taiwan Semiconductor fell -8.33% and South Korea’s Kosdaq ended down -4.15%. Yesterday was the first time that many US market commentaries placed the US stock market’s slide directly on US policymakers. At some point, these same journalists will recognize that many US government policies, such as tariffs and deglobalization, are inflationary, as our friend Brian recently pointed out.
Let me down from my soap box. Last night, electric vehicle (EV) battery maker CATL (300,750 HP) gained +5.97% after reporting that third-quarter profit could triple. The China Association of Automobile Manufacturers (CAAM) also announced that 2.672 million cars were produced in September, or +11.5% year-on-year, and sales of 2.61 million, or + 9.5% year over year. Electric vehicles now represent 27.1% of sales, with production increasing by +110% to 755,000 while also selling 708,000, an increase of +93.9%. Government recommitments to China’s carbon reduction targets have also helped, with green energy technology playing an increasing role.
After the close, September new loans and overall funding exceeded expectations and increased significantly. The political support is clearly happening as the PBOC has relaunched the Pledged Supplementary Loan (PSL) which provides loans to support property developments. Mainland markets made small gains while Hong Kong lagged as fears of COVID-19 restrictions associated with the upcoming winter/flu season raised concerns about consumption. The Hang Seng Index and Hang Seng Tech lost -2.23% and -3.55% as growth and internet stocks were hit hard. Short selling accounted for 22% of main card revenue, down from 25% yesterday. The Hang Seng Index is abbreviated as HSI, which clearly stands for Huge Short Interest. Even the shorts realized how embarrassing this situation was becoming as the short volumes of Internet stocks fell, although Ping An Insurance had 47% of the short volume today! The Hang Seng fell below 17,000, leading to the liquidation of many warrants/structured products, with the index closing at 16,832. Names of electric vehicles listed in Hong Kong were down despite the good news. One factor is the CNY’s recent weakness against the US Dollar, as it closed -0.15% at 7.16. Mainland investors made a healthy purchase of lower Hong Kong shares as Tencent (700 HK) bought 1.37 million shares today. Tencent has been buying 1 million shares a day since mid-August.
The Hang Seng Index and the Hang Seng Tech Index fell -2.23% and -3.55% on volume -4.1% from yesterday, or 73% of the 1-year average . 115 stocks rose, while 364 fell. Main Board short selling was down -13.09% from yesterday, or 95% of the 1-year average, as 22% of all trades were short today. Value factors “outperformed” growth factors as small caps outperformed large caps. Utilities was the only positive sector with +0.36%, while the discretionary sector -3.75%, communication -3.73% and real estate -2.99% all declined. The wind, solar, nuclear and utilities subsectors outperformed, while alcohol, retail, software and semiconductors were among the worst. Southbound Stock Connect volumes were moderate/light as mainland investors bought $397 million worth of Hong Kong stocks today, with Tencent a healthy buy, Li Auto a small buy and Meituan a small net sell. .
Shanghai, Shenzhen and STAR Board were mixed +0.19%, +0.61% and -0.51% on volume of -9.93%, or 57% of the 1-year average. 2,779 shares rose, while 1,753 shares fell. Growth and value drivers were mixed, with large caps outperforming small caps. The main sectors were utilities +2.35%, materials +1.24% and industrials +1.09%, while real estate -2.75%, communication -1.53% and healthcare -1.3% closed. The best performing subsectors were lithium batteries, power grid, auto parts and marine/shipping, while semiconductors, biotechnology, office products and restaurants were among the worst. Treasuries were lower, the CNY was down -0.15% against the US dollar at 7.166, and copper gained +1.63%.
Last night’s exchange rates, prices and yields
- CNY for 7.17 USD against 7.15 yesterday
- CNY for 6.97 EUR against 6.94 yesterday
- 10-year government bond yield 2.74% vs. 2.74% yesterday
- China Development Bank 10-year bond yield 2.91% vs. 2.91% yesterday
- Copper price +1.63% compared to yesterday