Markets rise with epic outflows as Internet stocks climb wall of anxiety, review

Last week in review

  • China’s December CPI came in at +1.8%, compared to November’s +1.6%, meeting expectations of 1.8%.
  • The World Bank cut its forecast for global GDP growth in half for 2023 on Wednesday, although it expects China’s GDP growth to be ahead of the pack.
  • The China Passenger Car Association released December and 2022 sales data, showing that 4 million electric vehicles were sold in China in 2022, which is 5 times more than the United States.
  • Jack Ma has shed most of his stake in financial technology giant Ant Group, paving the way for a final regulatory rubber stamp and a potential IPO.

Friday’s top news

Asian shares ended the week in the green, excluding Japan and Thailand, while Hong Kong, China and the Philippines fared better.

Global equities have performed strongly so far (knock on wood). Lots of news overnight! What did our China news risk barometer do? Remember, we use the Chinese currency as a risk barometer to see if the “news” is effective/is something relevant to us. CNY +0.17% against the USD to close at 6.72! All the negative Western media headlines? The stock market didn’t care as Hang Seng +1.04%, Hang Seng Tech +1.51%, Shanghai +1.01%, Shenzhen +0.9% and STAR Board +0.01% rose.

Just before the opening in Hong Kong, the Financial Times published an article titled “China to buy ‘golden stakes’ in Alibaba and Tencent units”. After a few paragraphs of the article, the source of the article is revealed. Is “individuals informed about the matter” a reliable source? I have no idea, but the bottom line is that the market just didn’t care Despite the Western media pushing the FT article. As a matter of fact, I see no mention of this in the mainland media. If true, there is an argument and indication that the companies are in favor of the government because their success will benefit them as well. I think we may see local provinces supporting companies, but we’ll find out.

Hong Kong was flat, albeit a little wobbly at the open, but late in the session Reuters reported that “Didi Global’s ride-hailing and other apps will be back in local app stores next week.” Reuters source? “It’s another signal that two years of regulatory pressure on the technology sector is coming to an end,” five sources told Reuters.

December trade data was released, showing year-on-year declines in exports and imports, although not as deep as expected. We must not forget that to wait China’s exports will slow as global demand for the world’s factories slows. Unfortunately, the export data is also an indicator of the global economy slowing down. Although lower commodity prices were a factor in the increase in crude oil imports, import data was weak, but the value of oil imports decreased due to lower oil prices.

The top seller in Hong Kong by value was Alibaba HK. It gained +1.71% on news that it will work with Geely Automobile (175 HK) on smart car technology. and Meituan -1.04% had a strong day for growth plays, along with dual-listed U.S. internet and electric vehicle (EV) companies. Hong Kong’s reopening games had a good day, as did Macau casinos and airlines. All sectors in Hong Kong were positive, with utilities outpacing decliners by about 4-1 as shares advanced. Hong Kong’s healthcare sector gained +4.6%, Wuxi Biologics Cayman (2269 HK) as two analysts upgraded their ratings/prices. target. Main Board’s short volume increased to 17% of total turnover as Alibaba’s short turnover accounted for 23% of total turnover, NetEase’s 32% and Tencent’s 17%. All sectors in China were higher today as value factors outperformed.

In China, talk that the PBOC will pump liquidity into the financial system ahead of Chinese New Year helped sentiment. The top sellers on the Mainland were CATL +1.38%, Kweichow Moutai +2.89%, Wuliangye Yibin +2.68%, Ping An Insurance +2.83%, East Money +3.08%, LONGi Green Energy +0.02% and BYD +0.46%. These are growth stocks favored by local and foreign investors, although I would argue that you don’t need an active manager to buy them! Foreign investors bought $1.984 billion worth of Mainland stocks through Northbound Stock Connect, for a weekly total of $6.519 billion. Semis was out for the day as meetings with Japan and the Netherlands to curb US technology exports to China intensified in space. Powerful day and week!

Two Chinese airlines have announced they will delist from the NYSE. Sounds bad, right? Wrong! These two companies are Public Entities that contain sensitive information that may be discovered during an audit by the PCAOB. The PCAOB is part of the SEC, which is part of the US government, a move we’ve seen from other government agencies. This indicates that private companies are allowed to comply with the HFCAA. This is good news!!!

The Hang Seng and Hang Seng Tech indices gained +1.04% and +1.51%, respectively, on volume down -16.65% from yesterday, which is 106% of their 1-year average. 388 shares increased and 104 shares decreased. Main Board short turnover is down -11.56% from yesterday, which is 103% of its 1-year average as 17% of turnover is short. Growth factors outperformed value factors and small sizes outperformed large sizes. The top performing sectors were healthcare +4.6%, staples +2.26% and communications +2.12%, with utilities the only negative sector -0.32%. The top performing subsectors are pharmaceuticals/biotech, healthcare equipment and media, semi-finished products, food/staples and utilities. Southbound Stock Connect volumes were light as mainland investors bought $261 million worth of Hong Kong stocks, with Tencent a moderate buy, BYD a small net buy, and Meituan and Li Auto small net sells.

The Shanghai, Shenzhen and STAR Boards gained +1.01%, +0.9% and +0.01% respectively on yesterday’s +3.27% increase in volume, which is 77% of the 1-year average. 2,796 shares advanced while 1,808 shares declined. Value factors outperformed growth factors as large caps barely edged out small caps. All sectors were positive, with consumer staples +3.33%, healthcare +3.01%, financials +2.17% and technology +0.36%. The best performing sub-sectors were soft drinks, household products and diversified financials, power generation equipment, gas industry and communication equipment. Northbound Stock Connect volumes were light/moderate as foreign investors bought $1.984 billion worth of Mainland stocks. The CNY moved strongly against the US dollar, +0.17% to close at 6.72, as Treasuries sold off and Shanghai copper, +0.26% gained.

Big China City Mobility Tracker

The trend continues to improve. Although traffic has been suspended in Shanghai and Chengdu, subway usage remains stable in both cities. Spring Festival/Chinese New Year travel is starting to pick up, although the market is open, as a mainland media source noted that 37.88 million people traveled on the fifth day alone. In a number of provinces, the number of cases of COVID continues to increase rapidly.

Last Night’s Show

Last Night’s Currency Rates, Prices and Returns

  • CNY 6.72 USD vs. 6.75 USD yesterday
  • CNY 7.26 against EUR 7.27 yesterday
  • 10-year government bond yield 2.90% vs. 2.88% yesterday
  • The 10-year China Development Bank Bond yielded 3.03% versus 3.00% yesterday
  • Copper price +0.26% overnight

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