Asian stocks were a sea of red except for Hong Kong and China, which posted gains.
The PBOC held the 1-year medium-term lending facility rate at 2.85% as the market expected a 10 basis point cut. We saw further improvement in the month-on-month data, with May industrial production gaining +0.7% year-on-year (y-o-y) from -2.9% in April and expectations of -0.9%. Coal mining jumped +8.2% YoY, followed by oil and gas mining up +6.6% respectively, while pharmaceuticals fell -12.3% . Retail sales were -6.7% year-on-year, better than expectations of -7.1% and -11.1% in April, auto sales, which account for 10% of retail sales, having fallen -16%.
Hong Kong and China rallied on better than expected economic news and a nice increase in volume, although gains were pared by profit taking late in the day. Not bad considering the whole region was down, which will make for an uncomfortable day for active managers underweight China. Hong Kong was dominated by internet stocks with Tencent gaining +1.01%, Alibaba HK +4.35% and Meituan +1.34%.
With the retail sales release, year-to-date online retail sales of physical goods were up 5.6% YoY, an increase of +0.4% since the start of the year. year until April. 24.9% of total consumer goods retail sales were made online. The National Bureau of Statistics noted that express delivery business volume increased by +20.6% month-on-month. Remember, the 618 online sales event is happening with preliminary numbers that look solid so far. Real estate was the best performer in both markets, as last month’s cut in the prime lending rate appeared to have had the intended effect. I had thought another LPR break might occur this weekend although the lack of MLF makes it unlikely; clearly my PBOC predictions are wrong.
Reuters reported that Baidu was selling its stake in iQIYI although the company denies this.
The Hang Seng and Hang Seng Tech gained +1.14% and +2.35% in volume +12.04% from yesterday, or 105% of the 1-year average. 305 stocks rose while 175 stocks fell. Hong Kong short selling revenue increased by +2.94%, or 107% of the 1-year average. Growth factors outperformed value factors while small caps outperformed large caps. The main sectors were real estate which gained +3.25%, discretionary +2.64%, healthcare +2.39% and financials +2.32% respectively, while utilities fell by – 2.65%, energy -1.69% and commodities -0.15%. Leading subsectors were online education and Alibaba ecosystem stocks, while electric vehicle, lithium and gas stocks were depleted. Southbound Stock Connect volumes were moderate/high as mainland investors were net buyers of Hong Kong stocks today with net purchases of Tencent, Meituan, Kuaishou and Li Auto.
Shanghai, Shenzhen and STAR Board closed +0.5%, +0.47% and -0.73% on volume +18.39% from yesterday, or 121% of the 1-year average. 2,664 shares rose while 1,718 shares fell. Value and dividend factors outperformed growth while mega and small caps outperformed large and mid caps. The main sectors were real estate +3.35%, finance +3.29%, communication +1.86% and industry +1.5%, while energy fell by -2.01 %, materials -0.29% and utilities -0.09%. Software, insurance and cement were the main subsectors, while energy exploration, coal mining and lithium were at a standstill. Overseas investors bought $1.991 billion worth of mainland stocks via Northbound Stock Connect, although Kweichow Moutai, Ping An and CATL saw a small net outflow.
Last night’s exchange rates, prices and yields
- CNY/USD 6.71 vs. 6.74 yesterday
- CNY/EUR 7.03 vs. 7.04 yesterday
- 10-year government bond yield 2.78% vs. 2.77% yesterday
- China Development Bank 10-year bond yield 2.99% vs. 2.98% yesterday
- Copper price -0.53% overnight