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LVMH CEO Visits China, China Last Night!

Published

June 29, 2023

Key News

Asia equity markets were mixed, with several markets closed for Eid al-Adha amid a slowdown in advance of the US holiday next week.

Hong Kong’s markets, which are considered offshore China and are predominantly owned by foreign investors, were off more than Mainland China’s markets, which are predominantly owned by domestic investors, though foreign investors cut their Mainland China holdings via Northbound Stock Connect by a healthy -$1.05 billion. Likely exacerbating the long weekend, risk-off mood was Jerome Powell’s expectedly hawkish commentary today, and June PMIs, which are expected to be released in a few hours. Foreign investors are far more pessimistic than domestic Chinese investors, as Western media is relentlessly negative.

The Manufacturing PMI and Non-Manufacturing PMI are expected to be 49 and 53.5 versus May’s 48.8 and 54.5. This could be “bad news is good news,” as it should push policymakers to push on the stimulus gas pedal. Remember, the Manufacturing PMI is an indication of the global economy as much as China’s economy. The renminbi hit 7.25 CNY per USD intra-day, though it rallied back to 7.24 as the PBOC appears to be saying “no mas!”/at a minimum, tap the brakes on the renminbi’s deprecation versus the US dollar. After the close, it was announced that the State Council, which is presided over by Premier Li, approved “Several Measures to Promote Home Consumption” with measures aimed at raising “the growth of resident’s consumption and economic recovery.” No specific details were announced, though we should assume they will be coming.

Hong Kong’s most heavily traded stocks were Tencent, which fell -0.77%, Alibaba, which fell -2.55%, Meituan, which fell -1.89%, AIA, which gained +0.38%, NetEase, which fell -0.13%, and JD.com, which fell -3.7% after founder Rich Liu sold $28 million worth of stock. Mainland China was mixed on light volume, as Shanghai closed just below the 3,200 level and Shenzhen closed just above the 2,000 level. As we’ve noted, Mainland government media personality Hu Xijin has been publicizing his purchase of China’s Mainland stocks earlier this week, stating that today, “I just took advantage of the low prices to increase the purchased quantity of two stocks.” If he is buying, should you be buying?

An Asian media source noted that, following Secretary of State Blinken’s visit to China, Deputy Secretary of State Wendy Sherman spoke with China’s US Ambassador on Tuesday as a follow-up. Also, US diplomat Daniel Kritenbrink spoke about potentially increasing flights between the US and China. There are currently only 24 flights a week versus pre-COVID’s 350 flights.

LVMH CEO Bernard Arnault is visiting China this week and was spotted at a luxury mall in Beijing today.

Mainland media noted President Xi sent a letter to a gathering of the “Friends of Kuliang,” a group of American descendants from WW2’s Flying Tigers. Xi wrote, “The experiences of “Friends of Kuliang” once again testify that the people of China and the US can develop deep friendship by transcending differences in (social) systems, cultures, and language.” Interesting!

I stumbled upon an article from an Asia financial media source titled “The great chatbot bubble,” which states, “Markets are grossly overestimating the near-term potential for chatbots to eliminate jobs and save corporate costs.” While agreeing AI will have a positive effect, it calls out Microsoft’s
MSFT
market cap increase of $1.5 trillion and Nvidia’s $640 billion market cap increase. The article struck me following Micron’s earnings last night, which saw the stock rise despite the revenue being less than a few years ago. That is funny because Alibaba’s revenue has increased over the last several years, and yet the stock is down!

The Hang Seng and Hang Seng Tech indexes fell -1.24% and -1.71%, respectively, on volume that increased +3.6% from yesterday, which is 71% of the 1-year average. 99 stocks advanced, while 384 stocks declined. Main Board short turnover declined -7.58% from yesterday, which is 68% of the 1-year average, as 16% of the volume was short turnover. Value factors outperformed growth factors, while large caps outperformed small caps. All sectors were negative, with discretionary -2.45%, utilities -2.17%, and materials -1.85%. The top sub-sectors were technical hardware, food, and telecom, while consumer durables, retailing, and consumer services were the worst. Southbound Stock Connect volumes were very light as Mainland investors sold -$457 million of Hong Kong stocks, with Tencent a small net buy, and Meituan and Kuiashou were small net sells.

Shanghai, Shenzhen, and the STAR Board diverged to close -0.22%, +0.31%, and -0.67%, respectively, on volume that decreased -2.46% from yesterday, which is 95% of the 1-year average. 3,174 stocks advanced, while 1,491 stocks declined. Growth and value factors were mixed as small caps outpaced large caps. The top sectors were communication +1.06%, tech +0.62%, and healthcare +0.19%, while real estate -1.31%, staples -1.1%, and utilities -0.94%. The top sub-sectors were communication equipment, industrial machinery, and electrical components, while restaurants, aviation, and airports were the worst. Northbound Stock Connect volumes were moderate/light as foreign investors sold a healthy -$1.05 billion of Mainland stocks, with China Tourism Group Duty-Free, Kweichow Moutai, and Longi Green Tech being large net sells.