Key News

Asian equities were largely higher as Japan closed for the Autumn Equinox.

The People’s Bank of China (PBOC) cut the 14-day reverse repo rate to 1.85% from 1.95% to play catch up with the 7-day reverse repo cut to 1.70% from 1.80% back on July 22nd. More importantly, PBOC Governor Pan Gongsheng will host a 9 am press conference tomorrow morning. It is likely the 7-day reverse repo rate, the bank reserve requirement ratio, and/or medium-term lending facility rate will be cut as well. The mortgage rate (5-year loan prime rate) was not cut last week, though could be revised, in theory. Markets will welcome interest rate cuts, though China does not suffer from a supply problem but, rather, a demand problem.

Meanwhile, Hong Kong, which had been up 7 of the last 8 days, was hit with profit taking on recent outperforming growth stocks and sectors, led lower by Hong Kong’s most heavily traded stocks by value: Alibaba, which fell -0.52% despite $252 million worth of net buying via Southbound Stock Connect and 451,800 ADRs bought back on Friday, Tencent, which fell -0.26% despite buying back 2.58 million shares today though some selling from Southbound Stock, Meituan, which fell -2.28% on Southbound Stock Connect selling, Xiaomi, which gained +3.37% on a new phone coming, and Wuxi Biologics, which fell -5.08% on the House’s passage of the Biosecure Act.

Electric vehicles (EVs) were off on a similar US ban of China EV software, which is nothing more than a headline since the US does not purchase EVs from China, though BYD fell -1.96%, Li Auto fell -0.99%, XPeng fell -2.23%, and NIO fell -4.99%. Internet plays were mixed, as JD.com gained +0.44%, Kuaishou fell -1.09%, Trip.com gained +0.73%, and Baidu fell -0.94%. Mainland China managed small gains led by mega-cap value stocks and sectors such as financials and energy while growth and small caps struggled. CATL bucked the trend to gain +1.4%.

Liquor giant Kweichow Moutai fell -0.19% with a buyback range of $426 million (CNY 3B) to $850 million (RMB 6 billion) in buybacks announced after the close.

The National Development and Reform Commission (NDRC) held a press conference to update the effectiveness of two new policies “promoting large-scale equipment update and trade-in-plus for consumer goods”. RMB 150 billion in government bonds have been issued with the proceeds sent to “4,600 eligible equipment updates” supporting equipment upgrades and “implementation of consumer goods in four areas including automobiles, home appliances, electric bicycles and home decorations”. It’s not the fiscal policy bazooka, but it’s a good start.

We call big index rebalances “moving days”, referencing the term used to describe Saturday in professional golf. If you are near the lead on Saturday, you’ve got to make a move to be in it on Sunday. Similarly, big asset managers use index rebalances and the ample liquidity that comes with them to adjust their portfolios without showing their hand. Arguably, Hong Kong-listed growth stocks did very well despite being a net sell in indices, indicating buyers are out there and a deluge of negative Western media news. There is a subtle shift occurring as the US dollar declines, which pressures foreign investors in US stocks. More importantly, Mainland investors are buying Hong Kong-listed growth stocks via Southbound Stock Connect.

The Hang Seng and Hang Seng Tech indexes fell -0.0.6% and -0.15%, respectively, on volume that decreased -29.7% from Friday, which is 119% of the 1-year average. 205 stocks advanced while 275 stocks declined. Main Board short turnover declined -29.62% from Friday, which is 130% of the 1-year average, as 18% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Large caps and the value factor fell less than small and the growth factor. The top-performing sectors were Technology, which gained +2.44%, Utilities, which gained +2.04%, and Energy, which gained +1.58%. Meanwhile, Health Care fell -2.21%, Consumer Discretionary fell -0.89%, and Communication Services fell -0.31%. The top-performing subsectors were technical hardware, basic utilities, and energy. Meanwhile, media, pharmaceuticals, and autos were among the worst-performing. Southbound Stock Connect volumes were moderate as Mainland investors were large net buyers of the Hong Kong Tracker ETF and Alibaba, while Tencent and Meituan were moderate net sells.

Shanghai, Shenzhen, and the STAR Board diverged to close +0.44%, +0.14%, and -0.82%, respectively, on volume that declined -4.03% from Friday, which is 70% of the 1-year average. 2,451 stocks advanced while 2,357 declined. Large caps and the value factor outperformed small caps and the growth factor. The top-performing sectors were Energy, which gained +1.51%, Utilities, which gained +1.4%, and Financials, which gained +1.02%. Meanwhile, Health Care fell -0.73%, Technology fell -0.52%, and Communication Services fell -0.40%. The top-performing subsectors were office supplies, coal, and banking while power generation equipment, motorcycle, and daily chemicals were among the worst-performing. Northbound Stock Connect volumes were light. CNY and the Asia Dollar Index had small declines versus the US dollar. Treasury bonds rallied. Copper and steel fell.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.06 versus 7.05 Friday
• CNY per EUR 7.84 versus 7.87 Friday
• Yield on 10-Year Government Bond 2.03% versus 2.04% Friday
• Yield on 10-Year China Development Bank Bond 2.12% versus 2.13% Friday
• Copper Price -0.48%
• Steel Price -2.41%