Key News
Asian equity markets had an ugly night as Japan and South Korea underperformed while Mainland China missed out on the fun due to the Mid Autumn Festival holiday (Golden Week).
Macroeconomic concerns weighed on risk assets. US House Speaker McCarthy was voted out against the backdrop of the government budget debate, which was postponed to next month. Also, strong US job data gave credence to “higher for longer” talk as US Treasury yields rose along with the US dollar during Asia trading hours.
However, there could be a light at the end of the tunnel as the US dollar has slipped this morning along with the US 10-year Treasury Yield.
Hong Kong closed lower on very light volumes and little individual stock news, except for the EU continuing to look at China’s subsidies for electric vehicles (EVs). Southbound Stock Connect is closed for the week, which is leading to the low volumes.
Mainland financial media touted the strong rebound in domestic travel and spending, with one headline stating, “The recovery trend of consumption is obvious!”. Despite the articles, reopening and consumption plays were lower in Hong Kong as only 90 stocks within the Hang Seng Composite Index advanced, and only 20 of the top 100 most heavily traded stocks by value were up. That is an improvement from yesterday’s 30 stocks within the broad Hang Seng Composite and 6 positive out of the top 100.
Without Mainland buyers, Hong Kong has little support. The Hang Seng Index closed above the 17,000 level. Remember, the move from active to passive means there are fewer mutual fund buyers who manage less money today than in the past. I’ll speak to expert Steven Holden of Copley Fund Research on this topic and report back. Our thesis is that non-fundamental factors are thus far outvoting fundamental factors, such as improving US-China relations. We also have a massive overweight to US stocks from global and domestic investors after 14 years of outperforming non-US equities significantly. Chinese financial media was most focused on the fall of the US’ magnificent seven stocks. Is the great unwind of US stock overweight occurring? Hong Kong dividends and buybacks as a factor continue to outperform in a sign of bottom buying. Hong Kong financials outperformed overnight as many banks have dividend yields near 10%. This doesn’t spare us from moves like today but indicates that we are close to the bottom.
Today’s WSJ has an excellent article on BYD.
The Hang Seng and Hang Seng Tech fell -0.78% and -1.71%, respectively, on volume that decreased -33% from yesterday, which is 50% of the 1-year average. 90 stocks advanced, while 400 declined. Main Board short turnover declined -26% from yesterday, which is 59% of the 1-year average, as 19% of turnover was short turnover (remember HK short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The value factor “outperformed”/fell less than the growth factor, with large caps doing the same versus small caps. Financials and staples were the only positive sectors, gaining +0.06% and +0.04%, while discretionary -1.94%, healthcare -1.68% and industrials -1.55%. Insurance and banks were the only positive sub-sectors, while auto, consumer services, and retail were the worst. Southbound Stock Connect was closed.
Shanghai, Shenzhen, and 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