Investors Liberate Themselves From Risk Assets

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Asian equities were lower overnight as Japan, South Korea, and Taiwan were down more than -3% ahead of Trump’s “Liberation Day,” while India, Indonesia, Malaysia, Pakistan, the Philippines, and Singapore were closed for Eid al-Fitr, an Islamic holiday marking the end of Ramadan.

Hong Kong and Mainland China were down but by less than 1%. The Hang Seng and Shanghai benefited from the strong performance of banks following the Ministry of Finance’s announcement over the weekend that the proceeds from the issuance of a Special Government Bond, totaling RMB 500 billion, will be used to raise the Tier 1 capital of state-owned-enterprise (SOE) banks, the Bank of Communication, CCB, Bank of China, and Postal Savings Bank. Mainland media sources noted several banks have raised their consumer loan rate from 2% to 3%. Energy was another rare bright spot in an otherwise off day with growth stocks off more than value stocks.

A few positives from overnight news include:

March’s Manufacturing PMI was 50.5 versus expectations of 50.4 and February’s 50.2, while the Non-Manufacturing PMI was 50.8 versus expectations of 50.6 and February’s 50.4.
Pop Mart gained +2.15% following last week’s results, while Midea Group gained +3.47% after selling its stake in Xiaomi, which fell by -3.62%, for $124 million.
Mainland investors bought the Hong Kong dip with $374 million of net buying, while Tencent fell -2.45% after it bought back 1.002 million shares today.

Similar to Hong Kong, growth stocks were off in Mainland China. It was quiet so we’ll be brief.

The Hang Seng and Hang Seng Tech fell -1.31% and -2.03%, respectively, on volume that was up +12.06% from Friday, which is 154% of the 1-year average. 124 stocks advanced, while 364 declined. Main Board short turnover increased by +3.51% from Friday, which is 146% of the 1-year average, as 14% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Value and large capitalization stocks “outperformed”/fell less than growth and small capitalization stocks. The top sectors were healthcare, up +0.92%, financials, up +0.51%, and energy, up +0.11%, while technology fell -3.25%, communication services fell -2.34%, and utilities fell -2.24%. The top sub-sectors were household appliances, consumer durables/apparel, and petroleum/petroleum services, while semiconductors, building, and technology hardware were the worst. Southbound Stock Connect volumes were 2.5X pre-September 2024 stimulus levels as Mainland investors bought $374 million of Hong Kong stocks and ETFs led by Meituan, SMIC, Tencent, and Xiaomi, which were small net buys, Alibaba was a very small net sell, and the Hong Kong Tracker ETF was a large net sell.

Shanghai, Shenzhen, and the STAR Board fell -0.46%, -1.04%, and -0.66%, respectively, on volume that was up +9.21% from Friday, which is 102% of the 1-year average. 906 stocks advanced while 4,172 declined. Value and large capitalization stocks “outperformed”/fell less growth and small capitalization stocks. The top sectors were utilities and energy, both up +0.42%, while real estate fell -1.81%, industrials fell -1.26%, and consumer staples fell -0.95%. The top sub-sectors were soft drinks, motorcycles, and telecommunications, while chemical fiber, leisure products, and forest were the worst. Northbound Stock Connect volumes were above average. CNY rose and the Asia dollar index fell versus the US dollar. Treasury bond prices rose. Copper and steel fell.

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