Investing

Consumption Policies Lift Growth Stocks, LVMH’s China Revenue Up +11%

Published

October 11, 2023

Key News

Asian equities were higher as South Korea and Hong Kong outperformed.

The State Administration of Financial Supervision issued a statement titled “Notice on Financial Support for the Resumption and Expansion of Consumption,” asking financial institutions to increase support for “the expansion of automobile consumption, increasing financial support for new consumption and service consumption, reducing consumer finance costs…”. The notice emphasizes the support for small businesses that employ most people in China versus state-owned enterprises (SOEs).

Easing auto loan policies with an emphasis on electric vehicles (EVs) sent autos higher in Hong Kong. BYD gained +1.94%, Li Auto gained +3.46%, XPeng gained +2.72%, and NIO gained +5.59%. Consumer discretionary stocks also saw a boost from the official guidance on stimulus.

Bloomberg’s article yesterday that China’s fiscal deficit will be expand by +3% this year was a positive tailwind though it remains unconfirmed.

Senate Majority Leader Schumer’s visit along with five other Senators appears to have been quite successful. China re-released their statement following the heinous attack on unarmed Israeli citizens and potential progress on fentanyl.

US dollar weakness also supported markets overnight. The US 10-year Treasury Yield declined, sending CNY and the Asia Dollar Index higher.

It is worth noting that the strong outperformance of the growth factor versus the value factor in Hong Kong and Mainland China. Investors want the “good stuff” and not slow/no-growth value sectors. Value sectors were the weakest performers in Hong Kong today as materials gained +0.21%, energy gained +0.23%, and financials gained +0.03% versus growth sectors including technology, which gained +2.53% and consumer discretionary, which gained +1.95%. What percentages are these sectors in your EM and China investments?

Both Hong Kong and Mainland China had strong volume as the former saw far more advancers than decliners. Healthcare, which is a growth sector in both Mainland China and Hong Kong, was the top-performing sector as it bottoms out. Sunny Optical rocketed higher by +12.23% on reports of Huawei’s strong cell phone sales, which also boosted semiconductor ecosystem plays in Mainland China. Shanghai and Shenzhen came off intra-day highs to post small gains as foreign investors were net sellers of Mainland stocks, including selling Iflytek, which gained +7.42%, though foreign investors only sold a net -$53 million. Mainland investors bought a net $170 million worth of Hong Kong stocks today as Meituan was a large net buy. Hong Kong did not rise as much as US-listed China stocks did yesterday, though US-listed China stocks appear to be up this morning.

“Sales Slow at Louis Vuitton’s Owner as China Sputters” was a common headline yesterday, though the statement is completely false. In Q3, regions with year-over-year (YoY) revenue growth included Asia ex Japan, which is mostly China, which saw revenue growth YoY of 11%, the US, which was 2%, Europe, which was 7%, and Japan, which was a strong +30%. Shouldn’t the headline be the “US Sputters”? The Wall Street Journal article spends considerable space bashing China’s economy with no mention of the US’ terrible growth percentage nor any mention of Japan’s strong numbers. This is job security for us at China Last Night as other media sources continue to show their biases undermine their credibility.

The Hang Seng and Hang Seng Tech indexes gained +1.29% and +2.01%, respectively, on volume that increased +11% from yesterday, which is 78% of the 1-year average. 381 stocks advanced while 114 declined. Main Board short turnover decreased -9.47% from yesterday, which is 75% of the 1-year average as 16% of turnover was short turnover (remember Hong Kong short turnover includes ETF short volume, which is driven by market makers’ hedging). The growth factor outperformed the value factor as small caps outpaced large caps. All sectors were positive including healthcare, which gained +4.56%, technology, which gained +2.55%, and consumer discretionary, which gained +1.97%. The top-performing subsectors were integrated circuits, contract research organizations, and semiconductors. Meanwhile, online education, internet lending, and luxury were among the worst. Southbound Stock Connect volumes were moderate as Mainland investors bought a net $170 million worth of Hong Kong-listed stocks and ETFs with Meituan, Sunny Optical, and Hong Kong Exchanges as small net buys. Meanwhile, Tencent and China Mobile were small net sells.

Shanghai, Shenzhen, and the STAR Board gained +0.12%, +0.29%, and +1.29%, respectively, on volume that increased +8% from yesterday, which is 96% of the 1-year average. 2,488 stocks advanced while 2,269 stocks declined. The growth factor outperformed the value factor as large caps outperformed small caps. The top-performing sectors were healthcare, which gained +1.74%, technology, which gained +1.04%, and communication services gained +0.54%. Meanwhile, energy fell -1.67%, materials fell -0.79%, and consumer discretionary fell -0.73%. The top-performing subsectors were contract research organizations, medical services, and ophthalmic medicine. Meanwhile, mining services, energy exploration, and natural gas were among the worst-performing. Northbound Stock Connect volumes were moderate as foreign investors sold a net -$53 million worth of Mainland stocks as Sokon was a moderate net buy, Aier Eye Hospital and Hai Tian were small net buys. Meanwhile, CTG Duty Free, Iflytek, Kweichow Moutai, and CATL were small/moderate net sells.