Asian stocks started the week well, led by a strong day in the Philippines. South Korea was closed on technical/development weakness, and Japan was on holiday. The Hang Seng Tech index gained +2.21%, led by internet stocks, the Hang Seng closed at +1.08% at its intra-day high.
Before the opening in Hong Kong, Mainland media source Caixin noted that Tencent’s trimming of its stake in Southeast Asian gaming/e-commerce company C Ltd had “nothing to do with regulatory risk”.
Over the weekend, I read a great Macroeconomic Outlook excerpt from an Asia-based institutional broker. Looking at the US market valuation versus Asia as an outsider, it is hard not to believe that a rebalancing may be taking place. The report looked at broad country benchmarks, in addition to comparing the largest US stocks by market capitalization and price-to-earnings ratios versus their Asian counterparts. The market does unexpectedly. An Asia rally in 2022 would undercut many investors following the strong performance of US equities since the global financial crisis.
All sectors in Hong Kong were up overnight as about 4 stocks advanced for every 1 falling stock. Volume declined -5.79% from Friday, which is only 84% of the 1-year average. Hong Kong’s most traded stocks by value were Tencent, which gained +2.3%, Alibaba HK, which fell -0.93% after a nice rebound last week, and Meituan, which gained +1.27%, though among several names. Had very strong days including Kuaishou. Which gained +10.11%, JD Health by +11.64% and Alibaba Health by +10.83%. Tencent and Meituan were both net buys by mainland investors through Southbound Connect.
The two best performing sectors were healthcare and real estate in both Hong Kong and Mainland China. Real estate was driven by news from regulators on Friday that strong companies in the space could acquire weaker players using bank loans, although we are yet to see a spike in M&A activity.
Had a strong day for healthcare as China continues war covid outbreaks, leading to demand for tests and vaccines.
There were about 3 advance stocks for every 1 declining stock in the Mainland markets, as Shanghai gained +0.39%, Shenzhen by +0.59% and Star Board gained +0.98%. Volume was down -12.99% since Friday, which is 99.8% of the 1-year average.
Electric vehicles, solar and wind were off limits as investors globally, including China, trim growth for value. Foreign investors bought $746 million worth of Mainland shares today through Northbound Stock Connect. Chinese Treasury bonds were mixed, the Chinese currency edged higher against the dollar and copper rose overnight.
One counterpoint to the Asian equity rally is that if the Fed raises rates it will fuel a rally of the US dollar. This will hurt shares denominated in other currencies. Since the Hong Kong dollar is pegged to the US dollar, Hong Kong listed stocks may have an advantage over other Asian markets from a currency perspective. However, China’s higher relative yields should help if we have the dollar rally if you think the Fed will actually raise rates in 2022. For what it’s worth, I’m in the camp, the rates will taper more than the hike.
Last Night’s Exchange Rates, Prices and Yields
- CNY/USD 6.37 vs. 6.38 Friday
- CNY/EUR 7.20 vs. 7.24 Friday
- Yield on 1-Day Government Bonds 1.78% vs. 1.76% Friday
- Yield on 10-Year Government Bonds 2.81% vs. 2.82% Friday
- Yield on 10-year China Development Bank bonds 3.09% versus 3.10% Friday
- Copper price +0.56% overnight