Saturday, May 18, 2024

China Market Update: China Leads Asian Stock Rally, Policy News Raises Small Caps & Industrials

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Key News

Asian equities were mostly higher overnight after US markets closed relatively flat yesterday.

Online retail sales increased +12.4% compared to only 3.1% overall, as the increasing internet penetration rate in China continues to show up in headline economic figures. However, the stronger growth in online sales was mostly ignored by foreign investors and the media.

Chancellor Scholz of Germany ended up discussing trade somewhat with Xi Jinping during his visit. We do not have many details on their discussion, but apparently the Chinese leader advised Scholz against “protectionism” as China tries to sell into European markets for electric vehicles. China’s excess capacity in manufacturing will need to go somewhere and Europe is the largest market for its cars.

The CSRC, China’s SEC, clarified the potential impact of new delisting rules. Small caps sold off somewhat on the new rules as investors feared that some would be targets for delisting. The regulator said that the new rules are focused on what it is calling “zombi firms” to clean up the market and that most small caps are not at risk of delisting. Small caps rose on the news.

Credit ratings agency Fitch said its outlook for a handful of large Chinese banks has changed for the better. This is contrast with the agency’s outlook for China’s government debt, which changed from stable to negative earlier this month.

Education, banks, and industrials rose on the Mainland following positive policy comments overnight. China Mobile gained on the announcement of an AI enhancement for its services.

The Hang Seng and Hang Seng Tech indexes closed slightly higher by +0.02% and +0.07%, respectively, on volume that decreased -13% from yesterday. Mainland investors bought a net $146 million worth of Hong Kong-listed stocks and ETFs via Southbound Stock Connect overnight. The top-performing sectors were Industrials, which gained +1.62%, Information Technology, which gained +1.27%, and Utilities, which gained +1.10%. Meanwhile, the worst-performing sectors were Energy, which fell -0.68%, Communication Services, which fell -0.49%, and Consumer Discretionary, which fell -0.19%.

Shanghai, Shenzhen, and the STAR Board all closed higher by +2.14%, +3.80%, and +2.42%, respectively, on volume that declined -3% from yesterday. Foreign investors sold a net -$32 million worth of Mainland-listed stocks overnight via Northbound Stock Connect. The top-performing sectors were Information Technology, which gained +3.16%, Communication Services, which gained +2.53%, and Materials, which gained +2.13%. Copper and steel rallied while CNY was flat and Treasury bonds rose slightly.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

  • CNY per USD 7.24 versus 7.24 yesterday
  • CNY per EUR 7.70 versus 7.70 yesterday
  • Yield on 1-Day Government Bond 1.40% versus 1.40% yesterday
  • Yield on 10-Year Government Bond 2.26% versus 2.27% yesterday
  • Yield on 10-Year China Development Bank Bond 2.34% versus 2.37% yesterday
  • Copper Price +1.42%
  • Steel Price 1.37%

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