{"id":3662,"date":"2023-05-03T11:12:27","date_gmt":"2023-05-03T15:12:27","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/how-index-funds-exacerbate-the-disconnect-between-economic-stock-performance\/"},"modified":"2023-05-03T11:12:27","modified_gmt":"2023-05-03T15:12:27","slug":"how-index-funds-exacerbate-the-disconnect-between-economic-stock-performance","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=3662","title":{"rendered":"How Index Funds Exacerbate The Disconnect Between Economic & Stock Performance"},"content":{"rendered":"
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Key News<\/h3>\n

Asian equities were lower overnight with Mainland China still on holiday until tomorrow.<\/p>\n

Hong Kong was lower though not nearly as much as US-listed China ADRs yesterday. Yesterday\u2019s bear raid took advantage of Asian investors being on vacation as there was no news except some clickbait nonsense. If you get the sense I\u2019m annoyed you are correct! Shorts\/sellers dictated yesterday\u2019s narrative as the geopolitical overhang kept buyers on the sidelines. Yes, US stocks were awful yesterday as the US bank crisis spreads in advance of the Fed\u2019s interest rate hike today and investors waking up to the debt ceiling issue.<\/p>\n

Starbucks\u2019 Q2 financial results and Yum China\u2019s Q1 2023 financial results are yet another example of China\u2019s economic rebound that will incrementally improve across 2023. Holiday travel numbers look very strong as Mainland media noted that the number of trips increased 70% year over year and 119% of 2019\u2019s level. China reopens tonight so hopefully we see buying volume pick up via Southbound Stock Connect though I assume most folks took the whole week off. Hong Kong short volume was 21% of Hong Kong\u2019s main board turnover as Alibaba HK had 25% of turnover was short turnover. Hong Kong\u2019s most heavily traded were Tencent -1.85% versus its OTC ADR -1.79%, Alibaba HK -2.37% versus the US ADR yesterday -3.12%, HSBC +0.34%, Meituan -0.91% versus its OTC ADR -3.02%, AIA -1.11%, Ping An -1.08%, JD.com HK -2.82% versus US ADR -3.55%, and Baidu HK -3.14% versus ADR -3.09%.<\/p>\n

One issue is passive investors, ETFs, and index funds, no longer hold the US ADRs of Alibaba, JD.com, Baidu, and Li Auto as ownership has migrated to the Hong Kong share class due to index methodology as index providers always prefer a local share class versus an overseas share class. This migration likely explains an element of US-China ADR volatility. Hopefully, Mainland investors return from holiday tonight and push stocks higher. This also explains why we\u2019ve advocated investors balance their offshore\/HK-US ADR positions with Mainland China exposure as the latter is less susceptible to the \u201cforeign investor freakout\u201d. Remember, MSCI China is 80% offshore China and only 20% Mainland China. Easy \u201calpha\u201d for managers to OW the Mainland IMO.<\/p>\n

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Caixin PMIs will be released overnight. Caixin\u2019s survey, conducted by IHS Markit, focuses on small companies versus the \u201cofficial\u201d PMI conducted by the National Bureau of Statistics focuses on large companies. China\u2019s economy and employment, like the US, are dominated by small businesses as State Owned Enterprises account for only 30% of GDP, 12% of employment, and 25% of tax revenue according to Goldman Sachs. Interesting right? The stats come from the growing body of research on the recent SOE reforms which are leading to the outperformance of the SOE stocks.<\/p>\n

The Hang Seng and Hang Seng Tech fell -1.18% and -1.63% respectively on volume -12.21% from yesterday which is 55% of the 1-year average. 104 stocks advanced while 383 stocks declined. Main Board short turnover fell -1.37% from yesterday which is 68% of the 1-year average as 21% of turnover was short turnover. Value factors outperformed growth while large caps \u201coutperformed\u201d small caps. All sectors were negative except materials which gained +0.21% while energy fell -2.46%, utilities closed lower -2.2%, and real estate was down -1.89%. Food was the only positive sub-sector while media, food, and energy were the worst. Southbound Stock Connect was closed.<\/p>\n

Shanghai, Shenzhen, and STAR Board were closed.<\/p>\n

Join us Thursday, May 11th at 12:15 pm PDT\/3:15 pm EDT for our virtual conference:<\/p>\n

Upcoming Event<\/strong><\/p>\n

KraneShares 2nd Annual West Coast Virtual Investment Forum: Investing in a Changing World<\/strong><\/p>\n

Click here to register<\/p>\n

Please note the above link is for the virtual registration page. For those who will be in San Francisco on May 11, 2023, there are still a limited number of seats available for the in-person conference. Click <\/em>here<\/em> to register. Registration for the in-person event is open to financial professionals only.<\/em><\/p>\n

<\/em>5.5 CFP & CIMA CE Credits Available<\/em><\/strong><\/p>\n

Last Night’s Performance<\/h3>\n

Last Night\u2019s Exchange Rates, Prices, & Yields<\/h3>\n