Takeaway: We knew August economic data was going to be ugly due to the one-two punch consisting of floods and the Delta quarantine in Ningbo, the world’s third-largest port. The “official” purchasing managers index (PMI) is a broad survey of predominantly large companies that compares economic activity on a month-over-month basis. September data is likely to increase from August, though August’s reading raises the likelihood that policymakers will provide economic support, giving credibility to the rumor that another bank reserve requirement ratio cut (RRR) could be in the works. The RRR cut would free up capital for lending that banks otherwise would leave on their books. The likelihood of a cut was raised after today’s release, which will likely be reinforced by the Caixin PMIs. In both of today’s PMIs, export orders continued to fall in a worrying sign for the global economy. It is also worth noting that both surveys had very high business activity expectations.
Asian equities had a strong day on high volumes driven by MSCI’s Quarterly Index Review, which requires passive managers of ETFs and index funds to trade at the end of the day so their portfolios match the refreshed index, which will be effective starting tomorrow. Thus, we need to take today’s price action with a grain of salt.
That being said, Hong Kong-listed China internet stocks ripped overnight. This was despite a barrage of negative Western media coverage concerning a blog that supported internet regulation. Tencent (700 HK) gained +3.31% as Asian investors did not seem to care about minors having the number of hours they can game limited though Western media make it seem as though the company is going out of business. Minors’ contribution to Tencent’s overall revenue is tiny. Take a look at our latest video to understand how big online gaming is in China among young adults.
To reiterate, we need to take today’s price action with a grain of salt due to MSCI-linked trading by passive managers. However, I cannot help but point out that the internet names overcame “bad” news today. One reason is simply that sellers exhausted themselves. In other words, it seems everyone who wanted to sell has already done so.
Nonetheless, Tencent did see net selling by Mainland investors via Southbound Stock Connect so I need to curb my enthusiasm. The company bought back 220,000 shares again overnight.
Mainland China was driven by value sectors though the clean technology sector had a strong day. PMI data might have weighed on Mainland sentiment as the market anticipates a bank RRR cut. Foreign investors were net buyers of Mainland stocks today.
The Hang Seng opened lower but managed an afternoon rally, closing +1.33% as volume increased +56% from yesterday, which is 127% of the 1-year average. The 209 Chinese companies listed in Hong Kong and within the MSCI China All Shares Index gained +2.65% led by discretionary +4.68%, energy +3.76% and communication +3.34% with all sectors in the green. Hong Kong’s most heavily traded stocks by value were Tencent, which gained +3.31%, Meituan, which gained +9.02%, Alibaba HK, which gained +4.61%, Ping An Insurance, which fell -3.82%, Kuaishou, which gained +8.61%, Wuxi Biologics, which gained +0.5%, Xiaomi, which gained +0.6%, AIA, which fell -1.01%, BYD, which gained +0.77%, and Geely Automotive, which gained +4.46%. Southbound Stock Connect volumes were moderate/high as Mainland investors sold -$859 million worth of Hong Kong stocks as Southbound trading accounted for 10.1% of Hong Kong turnover.
Shanghai, Shenzhen, and the STAR Board diverged closing +0.45%, -0.46%, and -2.06%, respectively, on volume that was down -5.93% from yesterday, but still 160% of the 1-year average. The 522 Mainland stocks within the MSCI China All Shares Index lost -0.06% with energy +4.81%, real estate +2.1%, financials +1.66%, and materials +1.63%. Meanwhile tech -2.26%, staples -1.61% and healthcare -1.07%. The mainland’s most heavily traded stocks by value were Longi Green Energy, which fell -8.06%, China Northern Rare Earth, which gained +10.01%, BYD, which fell -1.76%, Ganfeng Lithium, which gained +1.86%, TBEA, which gained +10%, COSCO Shipping, which fell -5.68%, Ping An Insurance, which fell -1.6%, CITIC Securities, which gained +5.51%, Tianqi Lithium, which gained +0.93%, and broker East Money, which gained +1.41%. Northbound Stock Connect volumes were elevated as foreign investors bought $951 million worth of Mainland stocks as Northbound Stock Connect trading accounted for 5.8% of Mainland turnover.
Last Night’s Exchange Rates, Prices, & Yields
- CNY/USD 6.46 versus 6.47 yesterday
- CNY/EUR 7.65 versus 7.63 yesterday
- Yield on 1-Day Government Bond 1.42% versus 1.43% yesterday
- Yield on 10-Year Government Bond 2.84% versus 2.85% yesterday
- Yield on 10-Year China Development Bank Bond 3.19% versus 3.19% yesterday
- Copper Price +0.67% overnight
Krane Funds Advisors, LLC is the investment manager for KraneShares ETFs. Our suite of China focused ETFs provide investors with solutions to capture China’s importance as an essential element of a well-designed investment portfolio. We strive to provide innovative, first to market strategies that have been developed based on our strong partnerships and our deep knowledge of investing. We help investors stay up to date on global market trends and aim to provide meaningful diversification. Krane Funds Advisors, LLC is majority owned by China International Capital Corporation (CICC).