Week in Review
- Asian equities were mostly lower this week as renewed concerns of another potential Fed rate hike weighed on risk assets globally.
- Trip.com reported Q2 revenue that exceeded pre-COVID (2019) levels by 29%, indicating a strong return to travel, at least domestically, for China’s consumer.
- The city of Shenyang cancelled home purchase restrictions and urged other cities to follow suit, which sent many real estate developers higher from depressed levels on Wednesday.
- China released August trade data on Thursday. While indicating a decline month-over-month, the release actually exceeded expectations in CNY terms.
Friday’s Key News
Asian equities were down except for India, which managed a gain. It was a quiet night with Hong Kong closed due to the largest amount of rain since 1884. Mainland China was off by a small amount due to an afternoon rally lifting stocks off the intra-day lows.
Stepping back, nothing has changed despite the roar of negative media attention surrounding Xi’s absence at the G20, Apple’s government employee ban, and Huawei’s phone and chip success with the Apple news weighing on US stocks. The bigger issue, in my opinion, is the stronger US economic news, which hurts the chances for a Fed pause as higher US yields propel the US dollar higher. Contacts in China were surprised by the US reaction to the iPhone ban, which hasn’t been officially confirmed. A ban shouldn’t be a surprise as many contacts didn’t believe the iPhone was popular amongst government workers nor used for official government business. iPhones are a luxury item in China due to their high cost relative to competitors. Huawei’s new Mate60 Pro is a mobile phone that can also use satellite phone and messaging when out of range of cell service. The launch is a potential threat to iPhone sales, though one should notice that Apple’s stock peaked back in late July.
Despite the roar of negative media news, US-China diplomatic relations have stabilized as the two sides are finally getting on planes and meeting with one another. China’s economic reforms continue with an emphasis on housing restrictions being loosened across the country. Support for the Mainland stock market continues as margin financing is lowered, IPOs are slowed, and stock sales are discouraged due to less supply. Meanwhile, dividends and buybacks are being encouraged, which will lead to more demand. The issue is a lack of buyers, which, against the backdrop of negative media stories, weighs on offshore China stocks in both Hong Kong and the US. CNY has struggled versus the US dollar, closing at 7.35 CNY per USD as the US dollar index grinds higher.
The Hang Seng and Hang Seng Tech indexes were closed today due to heavy rainfall.
Shanghai, Shenzhen, and the STAR Board were off -0.18%, -0.07%, and +0.19%, respectively, on volume that decreased -0.46% from yesterday, which is 87% of the 1-year average. 2,718 stocks advanced while 1,891 declined. Value and growth factors were off as large caps outpaced small caps. In US dollars, utilities constituted the only positive sector, up +0.69%. Meanwhile, energy fell -1.45%, communication services fell -1.44%, and materials fell -1%. The top-performing subsectors were aerospace/defense, telecom, and the power industry. Meanwhile, education, internet, and cultural media were among the worst-performing subsectors. Northbound Stock Connect was closed today. CNY and the Asia dollar index were both down versus the US dollar, closing at -0.13% and -0.03%, respectively. The Treasury curve steepened while copper and steel were lower.
We are currently running a survey with the help of our friends at Capvision to gain some insight into North American and European companies currently doing business in China. Specifically, we are trying to find out whether these companies are expecting to increase or decrease their China footprints. We are also seeking direct comments from these companies so that we can share them with our readers and you can hear from them firsthand.
So far, we asked 13 European and North American companies in the automotive industry whether they expected their China businesses to increase over the next five years and 10 said that they expected an increase. We also posed the same question to 13 companies in the healthcare industry and 11 of them said that they expected an increase.
One mid-sized North American healthcare company had this to say: “Our revenues in China have grown by at least 10% each year for the past 7 years. We anticipate this trend to continue in the near future. We do not see any significant changes in the growth of healthcare in China and will continue to invest resources into the market.”
Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.34 versus 7.33 yesterday
- CNY per EUR 7.87 versus 7.84 yesterday
- Yield on 1-Day Government Bond 1.45% versus 1.45% yesterday
- Yield on 10-Year Government Bond 2.64% versus 2.64% yesterday
- Yield on 10-Year China Development Bank Bond 2.77% versus 2.77% yesterday
- Copper Price -0.43% overnight
- Steel price -0.92% overnight
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