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Asian stocks were mixed but mostly fell overnight as uncertainty surrounding US interest rates continued to spread across global markets.

Today was a reversal of yesterday as Hong Kong managed to post gains while mainland markets fell. According to reports, a team from the United States Public Accountability Oversight Board (PCAOB) arrived in Hong Kong this week to review the audit books of China-based companies listed in the United States since the last fiscal year. According to mainland media reports, Chinese banks have been lowering deposit rates for their customers. This makes sense as it is further evidence of the country’s easing policies, unlike western countries.

Xi Jinping, India’s Narendra Modi and Vladimir Putin met at the China-led Shanghai Cooperation Summit in Uzbekistan to discuss a range of topics of global importance including the war in Ukraine. China continues to take a neutral outside stance towards the eight-month-old conflict. The CNH, the Chinese currency that is trading during US trading hours, has breached the psychologically important level of 7 CNY/USD. This is entirely due to the strength of the US dollar. The People’s Bank of China (PBOC) has been working hard to keep the exchange rate stable, and the central bank has done a decent job because the Chinese currency has held up better than most other Asian currencies. We believe that this exchange rate only means that Chinese assets are trading at a more attractive discount.

The European Union has announced new measures that may prevent the import of solar panels from China’s Xinjiang region. The move sent mainland China solar stocks sharply lower overnight, including Sun Grow, which fell 8.5% overnight. The new EU measures are broad and ill-defined, so we cannot be sure of their ultimate impact on China’s solar stock. It is important to remember the heavy reliance of the United States and the European Union on solar panels produced by manufacturers in China.

Moderna’s CEO said the company is in discussions with the Chinese government about providing an RNA vaccine, but no decisions have yet been made. A domestic mRNA vaccine in China is also under development. CSPC Pharmaceutical is accelerating its Phase III trial of a new mRNA vaccine, which may receive emergency approval for distribution to the Chinese public.

Reuters reports that Biden plans to extend US export bans on China’s semiconductor industry, including Lam Research
LRCX
and applied materials
AMAT
. The Commerce Department has sent letters to Nvidia and AMD to ban the export of artificial intelligence chips to China. The scope and implementation of this plan has not yet been determined. More than 30% of the US semiconductor industry’s revenue is derived from sales in China, according to GlobalData. The Boston Consulting Group (BCG) estimates that US companies will lose 18 percent of their global market share and 37 percent of their revenue – resulting in the loss of 15,000 to 40,000 highly skilled local jobs – if Washington follows a tough technology separation and bans outright Domestically, semiconductor companies can sell to Chinese customers.

Hang Seng and Hang Seng Tech are gaining +0.44% and +0.25% on volume -12.71% from yesterday which is 64% of the year average. The prices of 220 shares rose while 251 shares declined. Hong Kong short selling turnover decreased by -25.78% overnight which is 70% of the one year average where short selling accounted for 19% of total turnover. Growth and value factors were mixed as the large companies underperformed the large companies. The main sectors were real estate + 4.17%, healthcare + 2.95%, commodities + 0.82%, utilities -2.08%, energy -0.84%, and industry -0.69%. The top sub-sectors were biotechnology, real estate developers, and cement, while solar, semi- and wind power were among the worst. Volumes on Southbound Stock Connect were light as mainland investors bought $275 million in HK shares, with Wuxi Biologics being a big buy for the third day while Tencent and Meituan were net buys.

Shanghai, Shenzhen and Starboard prices are down -1.16%, -2.34% and -3.03% respectively in trading volume +27.69% from yesterday which is 90% from the first year average. Only 495 shares rose, while 4,112 shares declined. Real estate and finance gained +2.69% and +0.32% while technology -3.91%, industry -3.35%, discretion -2.73%. The top sub-sectors were related to real estate, and finance such as insurance, and coal mining, while solar, batteries, semi- and auto parts were among the worst. Foreign investors sold $591 million in mainland stock today via Northbound Stock Connect. The Chinese yuan fell -0.45% against the US dollar to 6.99 from 6.95, Treasuries stabilized, and copper lost -0.32%.

Currency exchange rates, rates, and returns

  • CNY / USD 6.99 vs 6.96 yesterday
  • CNY / EUR 6.98 vs. 6.96 yesterday
  • The 10-year government bond yield is 2.66% vs. 2.66% yesterday
  • The 10-year CDB yield is 2.82% vs. 2.82% yesterday
  • Copper price -0.32% overnight