Industrial Profits Were Great If You Looked

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Asian equities had a relatively strong day, led by Malaysia and Japan despite the news of a 25% U.S. tariff on imported cars. However, South Korea and Taiwan saw declines of more than 1%. Hong Kong and Mainland China opened lower but managed to grind higher before fading in the afternoon. President Trump’s comments that a TikTok sale in exchange for lower tariffs might have helped.

Vice Premier and lead trade negotiator He Lifeng also had a “candid” conversation with US Trade Representative Jamieson Greer on trade and fentanyl. You’ll see headlines on how badly January and February industrial profits YTD were -0.3%, which indicates how badly China’s economy is doing. If only the authors behind those headlines had read the report or listened/read the press conference as industrial sectors aligned with consumer trade-in subsidies, saw profits increase, including auto +11.7% YoY, smart consumer equipment +125.5%, home kitchen appliances +19.9%, and home refrigeration appliances +19.2%. Computer/communication and electronic equipment were off -9.4% YoY, though as a beneficiary of the new trade-in subsidy, I expect this number will increase. The culprits were private enterprises -9% while profits at large SOEs +2.1%, “joint-stock enterprises” +2%, and foreign-invested enterprises +4.9%.

Hong Kong growth stocks had a decent day, especially against the US tariff headlines led by internet, semis, healthcare, and EV less NIO -5.1% after announcing it will raise $450mm to fund R&D by selling 118.8mm shares. Hong Kong’s most heavily traded by value were Xiaomi -4.17% after its stock sale, Tencent +0.49% after the close announcing they bought 981,000 shares, SMIC +4.24%, Alibaba +0.46%, BYD +2.26%, Meituan +1.81% and Kuaishou +1.34%. Earnings for the day included insurance giant PICC 2024 net profit +88.8%, China Life net profit +108.9% YoY, Bank of China net profit +2.6%, and Apple supplier Goertek net profit +144% YoY while ENN Energy +11.02% on a take-private deal.

After strong financial results yesterday, Mainland investors bought $532mm of Hong Kong stocks, led by Pop Mart +9.924%. Mainland China had a fairly uneventful day bouncing around the room with utilities underperforming. PBOC Deputy Governor Xuan Chang spoke at the Boao Forum for Asia today, reiterating the central bank’s loose monetary policy and will cut the bank reserve requirement ratio and interest rates further at an “appropriate time,” i.e., when the US Fed cuts. JP Morgan joined MS and GS, upgrading their MSCI China targets. However, I feel bad they are stuck using a benchmark filled with slow/no-growth sectors like financials and energy that aren’t beneficiaries of policy stimulus.

The Hang Seng and Hang Seng Tech gained +0.41% and +0.29% on volume +19.96% from yesterday, which is 144% of the 1-year average. 265 stocks advanced, while 206 declined. Main Board short turnover increased +1.28% from yesterday, which is 156% of the 1-year average, as 17% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Growth and small caps outperformed value and large caps. The top sectors were healthcare +5.87%, staples +1.84%, and utilities +1.52%, while tech -3.04%, materials -1.32%, and financials -0.4%. The top sub-sectors were consumer durables/apparel, pharmaceuticals, and consumer services, while technology hardware, nonferrous metals, and national defense were the worst. Southbound Stock Connect volumes were 3x pre-stimulus levels as Mainland investors bought $532mm of Hong Kong stocks and ETFs led by Pop Mart moderate/large net buy, Alibaba, Kuiashou, and XPeng small net buys, Xiaomi, Tencent, SMIC, and Innovent Bio small net sells.

Shanghai, Shenzhen, and STAR Board were mixed +0.15%, -0.07%, and +1.12% on volume +3.05% from yesterday, which is 99% of the 1-year average. 2,006 stocks advanced, while 2,978 declined. Quality, momentum, and large caps outperformed growth, value, and small caps. The top sectors were healthcare +2%, discretionary +1.21%, and staples +0.86%, while utilities -0.81%, materials -0.58%, and tech -0.24%. The top sub-sectors were office supplies, pharmaceuticals, and soft drinks, while power generation equipment, energy equipment, and catering/tourism were the worst. Northbound Stock Connect volumes were average. CNY and the Asia dollar index made a small gain compared to the US dollar. Treasury bond prices fell. Copper and steel fell.

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