Week in Review

• It was a solid week for Asian equities, except for India and the Philippines, which posted small losses.
• The week began with Trump’s Inauguration, which was attended by Han Zheng, China’s Vice President, and ended with Trump stating that he would rather not have to use tariffs on China-originated goods. Check out our article on why we think China stocks could be a Trump trade.
• The China Securities Regulatory Commission (CSRC) and China’s insurance regulators announced that 30% of all new insurance policies written in 2025 will be invested into the stock market, compared to only 13% today.
• Educational technology company TAL Education beat estimates on revenue, net income, and earnings per share (EPS) in its fourth quarter earnings, released Thursday.

Key News

Asian equities ended the week on a high note, as Mainland China and Hong Kong outperformed and the Philippines underperformed.

President Trump’s interview on Fox News was widely cited as the catalyst for Hong Kong and Mainland China markets’ outperformance overnight. Trump’s statement “And I’d rather not have to use [tariffs on China]” lifted hopes that campaign rhetoric will not become reality. When asked if a trade agreement could be reached, he responded “I can do that.” He also stated, “We have one very big power over China, and that’s tariffs, and they don’t want them.” Because I didn’t catch the interview, I found shockingly little in US media coverage.

Neither Washington DC nor Western media are prepared for an improving US-China relationship, in my opinion. Neither are investors, as China allocations remain at all-time lows.

President Trump’s Davos speech was also positive on China and did not mention tariffs when speaking about China, though that element of his speech received no media attention. It is interesting that, in hindsight, President Xi spoke with President Putin shortly after his call with President Trump. I wonder if Trump asked Xi to pressure Putin to resolve the situation in Ukraine?

Regardless, Mainland China and Hong Kong markets were led by growth stocks, which are favored by both domestic and foreign investors. The Hang Seng Index closed above the 20,000 level on strong volume and breadth. Cellphone and now vehicle maker Xiaomi continued its vertical rise, up +6.81%, though, after the close, it announced an electric vehicle (EV) recall.

Internet stocks had a good day, except for Meituan, which fell -0.73%, led by Trip.com, which gained +5.25% as preliminary travel data for the Lunar New Year look strong. The only negative today was that Mainland investors sold -$431 million worth of Hong Kong-listed stocks and ETFs.

Mainland China was also led by growth stocks and subsectors while mega-cap banks, energy, and liquor were off. Electronic device, electronic component, computer makers and communication equipment makers all outperformed as investors warm to the new trade in subsidies.

The Ministry of Commerce (MoC) stated overnight that the legacy trade in subsidy program has led to 6.8 million cars exchanged, 62.6 million appliances, and 1.3 million electric bicycles, as total sales exceeding RMB 1.3 trillion, which added 1% to 2024 retail sales.

There was an interesting article on China’s outbound investment program called QDII, which works similarly to the inbound quota programs, QFII and RQFII (requires approval, given maximum investment limit). As managers report on their holdings, an article noted that several QDII funds focused on growth stocks and electric vehicles (EVs) had shifted their holdings from US stocks to Hong Kong stocks. It is hard to know why (buy low, sell high) but interesting, nonetheless.

The Hang Seng and Hang Seng Tech indexes gained +1.86% and +3.15%, respectively, on volume that increased +7.6% from yesterday, which is 117% of the 1-year average. 373 stocks advanced while 104 declined. Main Board short turnover decreased -21.53% from yesterday, which is 103% of the 1-year average, as 14% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The growth factor and large caps outperformed the value factor and small caps. The top-performing sectors were Technology, which gained +6.21%, Communication Services, which gained +2.28%, and Materials, which gained +2.25%. Meanwhile, the worst-performing sector was Utilities, which fell -0.34%. The top-performing subsectors were technology hardware, semiconductors, and coal. Meanwhile, consumer services, paper & packaging, and petroleum were among the worst-performing subsectors. Southbound Stock Connect volumes were at 1.5X pre-stimulus levels as Mainland investors sold a net -$431 million worth of Hong Kong-listed stocks and ETFs, including Semiconductor Manufacturing International (SMIC), Meituan, and Alibaba, which were small net buys. Meanwhile, they net sold Xiaomi, The Hong Kong Tracker ETF, CNOOC, and China Mobile, ZTE, UB Tech Robotics, and Tencent.

Shanghai, Shenzhen, and the STAR Board gained +0.70%, +1.21%, and +0.90%, respectively, on volume that declined -9.83% from yesterday, which is 112% of the 1-year average. 3,798 stocks advanced while 1,132 declined. The growth factor and small caps outperformed value and large caps. All sectors were positive, led by Technology, which gained +2.64%, Communication Services, which gained +2.27%, and Industrials, which gained +1.64%. The top-performing subsectors were internet, software, and communication equipment. Meanwhile, highways, gas, and liquor were among the worst-performing subsectors. Northbound Stock Connect volumes were above average. CNY and the Asia Dollar Index were higher versus the US dollar. Treasury bonds fell. Copper rose while steel fell.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.28 versus 7.26 yesterday
• CNY per EUR 7.58 versus 7.58 yesterday
• Yield on 10-Year Government Bond 1.66% versus 1.66% yesterday
• Yield on 10-Year China Development Bank Bond 1.69% versus 1.68% yesterday
• Copper Price -0.46%
• Steel Price +0.69%