Key News
Asian equities were mixed but mostly lower overnight as the Philippines and Japan outperformed while Thailand and Hong Kong underperformed.
Both Hong Kong and Mainland China underperformed the region and lost some of their strong gains from last week. However, Mainland investors bought the dip in Hong Kong intensively, pouring nearly $4 billion into Hong Kong-listed stocks and ETFs on the weakness. There was also a significant rotation into value from growth stocks, continuing what was happening on Friday. However, health care held up better than most growth sectors.
China’s February inflation reading of -0.7% dinted confidence in the current market uptrend. However, there is a significant silver lining here: reversing deflation will require considerable consumer support. At the National People’s Congress (NPC) in Beijing, which is still ongoing, policymakers discussed more consumer stimulus and support for the economy as top priorities. They even indicated a target inflation rate of 2%. Achieving this target would be a feat indeed, and suggests more stimulus than originally anticipated. Meanwhile, Trump’s tariffs are also leading to more alacrity from the central government.
Trade data was weaker than expected as both imports and exports declined in February.
Yields on government have seen a slight uptick as stock momentum leads investors to own equities over stocks. We have been saying for months now that the equity risk premium (i.e. what you are paid for investing in stocks versus investing in bonds) in China has been at some of its highest levels in a decade. That gap is starting to close. This also means that policymakers will be more confident in CNY strength, making them better able to stimulate the economy.
Schools in Beijing and other tier-1 are said to be introducing more education to students around AI and digital transformation. This reform to education could benefit names including TAL Education, which has become a premier education technology provider after shifting its focus from private tutoring.
Xpeng was featured at this year’s National People’s Congress (NPC) as the electric vehicle company announced that production of its flying car could begin as soon as 2026. Policymakers stressed the further development of autonomous driving systems, where Baidu leads, and humanoid robots.
The Hang Seng and Hang Seng Tech indexes both closed lower by -1.85% and -2.52%, respectively, on volume that decreased -21% from Friday. Mainland investors bought a net $3.8 billion worth of Hong Kong-listed stocks and ETFs overnight via Southbound Stock Connect. The top-performing sectors were Materials, which gained +0.38%, Energy, which gained +0.34%, and Heath Care, which gained +0.14%. Meanwhile, the worst-performing sectors were Communication Services, which fell -2.11%, Financials, which fell -1.14%, and Real Estate, which fell -0.96%.
Shanghai, Shenzhen, and the STAR Board all closed lower by -0.19%, -0.01%, and -0.22%, respectively. The top-performing sectors were Energy, which gained +0.75%; Materials, which gained +0.61%; and Industrials, which gained +0.28%. Meanwhile, the worst-performing sectors were Consumer Discretionary, which fell -3.45%, Health Care, which fell -2.62%, and Communication Services, which fell -2.50%.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.26 versus 7.25 Friday
- CNY per EUR 7.87 versus 7.85 Friday
- Yield on 10-Year Government Bond 1.81% versus 1.80% Friday
- Yield on 10-Year China Development Bank Bond 1.84% versus 1.81% Friday
- Copper Price -0.32%
- Steel Price -0.49%
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