Chinese stocks outperform Asia for the day, week, month and quarter

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Asia ended the month with a thud, with the exception of China, which is fitting as Chinese and Hong Kong equities were the only positive markets for the month. For the second quarter, China and Hong Kong were down slightly, while most of Asia’s developed and emerging markets were in double digits. Please keep it a secret, because we hope we can grind higher! Taiwan underperformed as US semifinal weakness goes global. Mainland investors cheered June manufacturing PMI of 50.2 vs expectations of 50.5 and 49.6 in May and non-manufacturing PMI of 54.7 vs expectations of 50.5 and 47.8 in May. Remember, month after month things should get better/less bad! Both PMI producer prices were subdued, indicating that inflation is low in China. This gives the green light for more economic support without increasing inflation. A hidden gem in the PMIs is business activity expectations which were both strong and increasing.

Growth-oriented mega/large-cap stocks favored by domestic and overseas investors had a strong day despite the closure of Northbound Stock Connect today. Another big story is the net purchase of $10.912 billion of onshore Chinese stocks (Shanghai and Shenzhen stocks) from overseas investors via Northbound Stock Connect. Since 12/31/2019, a total of $106 billion has been invested. Real estate performed well in China and Hong Kong following the bold appeal of the real estate market by Vanke executives yesterday. Travel names such as Trip.com HK (9961 HK) +0.73% also performed well in both markets as the world is expected to wake up at some point to the easing of covid policies and quarantines. Hong Kong gave up morning gains for afternoon losses as President Xi visited the city ahead of the 25th anniversary of Britain’s handover of Hong Kong to China. Tencent (700 HK) was down -2.9% despite seeing robust buying from mainland investors in Southbound Stock Connect.

The recent fall after shareholder Prosus announced it would sell its stake in Tencent led Tencent to begin buying back shares. Today was the third day he redeemed shares. JD.com HK (9618 HK) +0.56% as the announcement of Prosus had sold its position should be a suitable catalyst although many internet names were down slightly. NIO HK (9866 HK) +3.93% ignores fraud claims from short sellers. AI firm SenseTime (20 HK) cratred -46.77% as its IPO stock lockout expired. IPO of Tianqi Lithium’s HK shares will take place on July 13e. Bilibili HK -3.55% (9626 HK) despite announcing that it will make Hong Kong its main listing, which will make it eligible for Southbound Stock Connect.

The Hang Seng and Hang Seng Tech closed -0.62% and -3.27% on -8.58% volume from yesterday, or 106% of the 1-year average. 200 stocks rose while 277 fell. Hong Kong short selling turnover was down -27.2% from yesterday, or 96% of the 1-year average. Value and growth factors were mixed, with large caps outperforming small caps. The main sectors were Commodities +1.73%, Utilities +1.65% and Real Estate +0.95%, while Communication -2.26%, Discretionary -1.36% and technology -1.07%. Top subsectors were online education, power companies, beer stocks and private hospitals, while liquor stocks, virtual reality, video games and AI stocks were among the worst. Southbound Stock Connect volumes were high/moderate as mainland investors were net buyers of Hong Kong stocks, with Tencent seeing strong buying.

Shanghai, Shenzhen and STAR Board gained +1.1%, +1.35% and +1.37% on volume -11.81% from yesterday, or 107% of the 1-year average. 2,879 stocks rose, while 1,413 fell. Growth factors outperformed value factors while large caps outperformed small caps. The main sectors were Commodities +2.81%, Healthcare +228% and Real Estate +2.1%, while Utilities and Energy were down -0.32% and -0 .18%. The top subsectors were those related to travel, liquor inventory and food, while infrastructure and auto parts were among the worst. Northbound Stock Connect was closed today. Treasuries rallied, the CNY eased against the US dollar and copper managed a small gain.

Last night’s exchange rates, prices and yields

  • CNY/USD 6.70 vs. 6.69 yesterday
  • CNY/EUR 6.97 vs. 7.05 yesterday
  • 10-year government bond yield 2.83% vs. 2.83% yesterday
  • China Development Bank 10-year bond yield 3.05% vs. 3.05% yesterday
  • Copper price +0.39% overnight

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