Week in Review
- Asian equities were mostly lower this week as investors became skeptical that the AI-fueled tech stock rally so far this year has more room to run and largely believe that China’s year-to-date stimulus measures have not been enough.
- Alibaba announced key leadership changes following its restructuring into six separate businesses. Daniel Zhang will take over the cloud arm after stepping down as CEO, Eddie Wu will take over his position as CEO, and Joe Tsai will become Chairman of the holding company.
- The electric vehicle ecosystem received a boost this week with the extension of tax waivers for new energy vehicles until 2027.
Friday’s Key News
Asian equities closed out a lower week lower as global central bankers continue to hike interest rates leading to weakness in risk assets.
US stocks appear immune and/or unaware of non-US equity/risk asset weakness as Apple’s market cap is now larger than the combined market cap of the 717 companies in the MSCI China Index. The Asia Dollar Index and the offshore Renminbi (CNH) both weakened versus the US dollar overnight despite that fact that the US 10-Year Treasury yield is lower on the week. Overnight saw very light volumes in Hong Kong as Mainland China, which accounts for nearly 1/3 of Hong Kong’s daily volume via Southbound Stock Connect, was closed. The light volumes exacerbated a down day as many investors extended Thursday’s Dragon Boat holiday for a four-day weekend.
Hong Kong’s most heavily traded stocks by value were Tencent, which fell -1%, Alibaba, which fell -0.77%, AIA Group, which fell -2.62%, and Meituan, which fell -2.27%. Of the top 50 most heavily traded stocks by value, only two were positive, as all sectors and all subsectors were down on the day.
Stocks with good news could not advance, as electric vehicle (EV) ecosystem stocks were down, despite the recently announced tax cut extension. BYD fell -3.25%, Li Auto fell -2.94%, XPeng fell -8.97%, and NIO fell -6.61%. Similarly, Tencent fell -1% and NetEase fell -0.94%, despite receiving online game approval.
Internet names were off, but not nearly as much as the broader market. Meanwhile, 688 sales festival data and Dragon Boat holiday travel numbers looking strong.
We know the true culprit is that China’s policymakers are taking a conservative approach to stimulus, which has left investors wanting. The South China Morning Post had an interesting article stating that retired Vice Premier Liu He has continued to serve as an economic advisor to President Xi.
The US-China geopolitical backdrop explains an element of the policy conservatism. The two economies are highly intertwined, making the decoupling narrative a great headline and click bait, but difficult in reality. Additionally, hurting China will only hurt US multinationals that continue to do well in China, which also happen to be the most widely held and respected stocks by US investors. At the same time, policy makers should note the market’s impatience.
The Hang Seng and Hang Seng Tech indexes closed lower by -1.71% and -2.08%, respectively, on volume that decreased -28.9% from Wednesday, which is 60% of the 1-year average. 37 stocks advanced while 476 declined. Main Board short turnover declined -17.83% from Wednesday, which is 58% of the 1-year average, as 16% of turnover was short turnover. The value factor “outperformed” (i.e. fell less) than the growth factor as large caps “outperformed” small caps. All sectors were negative as utilities fell -3.81%, real estate fell -2.86%, and healthcare fell -2.48%. All subsectors were negative as autos, pharmaceuticals, and utilities were among the worst performers. Southbound Stock Connect was closed.
Shanghai, Shenzhen, and the STAR Board were closed.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
Mainland bond and currency markets were closed overnight.
Read the full article here
