Mainland China & Hong Kong Resilient Despite Liberation Day

Key News

Asian equities were lower overnight following President Trump’s “Liberation Day” tariff announcements. Vietnam and Japan were hit hard, while Taiwan and Indonesia picked the right day to be closed. Hong Kong, Mainland China, and South Korea were all off, but quite resilient as all markets were down less than -2%.

I think it is important to note that both Mainland China and Hong Kong will be closed tomorrow. In the twelve years of studying this market and seven or eight years writing China Last Night, today’s market action doesn’t make the top ten drawdowns by a long shot. Why?

Mainland China and Hong Kong are much smaller percentages of global indices, as China makes up only 3.24% of the MSCI All Country World Index as of March 31st, versus a 5.2% peak weight.
While global investors remain underweight in Mainland China, increasingly, domestic Chinese and Asian regional investors account for a bigger percentage of ownership than in the past. Global investors continue to significantly overweight US stocks, as 31.7% of US stock ownership is held by foreign investors, according to the US Treasury as of Q2 2024.
The China government’s policy response is apt to focus on raising domestic consumption. Mainland-listed catering/restaurants and retail were top sub-sector performers.
Mainland investors bought a vast $3.7 billion worth of Hong Kong-listed stocks and ETFs today, net of selling, including Alibaba, the Hong Kong Tracker ETF, and the Hang Seng China Enterprise ETF, which saw massive inflows today. The largest net buys were Tencent, which fell -1.23%; Semiconductor Manufacturing International (SMIC), which gained +0.78%; and Xiaomi, which gained +3.03%. Southbound Stock Connect accounted for 44% of Hong Kong’s turnover.

Not all everything was rainbows and unicorns, though. Specifically:

Apple’s supplier ecosystem was smoked, as Sunny Optical fell 6.64%, AAC Technologies fell 12.76%, and Mainland-listed GoerTek fell10%.
Export-driven manufacturers were hit with -14.15% for textile manufacturer Shenzhou International, -12.37% for power tool maker Techtronic Industries, -7.79% for computer maker Lenovo, -8.03% for appliance makers Haier Smart Home, and -4.77% for Midea.
Alibaba fell -5.00%, JD.com fell -5.19%, and PDD fell -5.25% pre-market after the cancellation of the de minimis exemption rule. PDD doesn’t break out its non-China revenue, so we are a bit in the dark. Alibaba’s quarter ended 12/31/2024 saw revenue of $38.381B, of which $5.173B was from Alibaba International. The company didn’t mention or break out the US revenue, though I assume it is small, as it is focused on Europe and the Middle East. JD.com did $47.5B of revenue in Q4 2024 but doesn’t break out US revenue, as I assume it is exceedingly little.

Hong Kong and Mainland China had several positive sectors, including Real Estate, as the China Index Academy reported the average price of new residential buildings in 100 cities increased +0.17% month-over-month (MoM) in March and +2.63% year-over-year (YoY). The wealth of a city was a big determining factor as, for Tier 1 cities Beijing and Shanghai, new home prices increased by +0.73% and +0.52%, respectively. Meanwhile, 2^nd Tier Cities saw an average increase of +0.03%, and 3^rd and 4^th Tier cities actually saw a decrease of -0.09%.

March’s Caixin Services purchasing managers’ index (PMI) was 51.9 versus expectations of 51.5 and February’s 51.4.

The Hang Seng and Hang Seng Tech indexes fell -1.52% and -2.09%, respectively, on volume that increased +33.65% from yesterday, which is 172% of the 1-year average. 149 stocks advanced, while 322 declined. Main Board short turnover increased by +92.1% from yesterday, which is 239% of the 1-year average, as 21% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Value and dividend stocks “outperformed” (i.e. fell less than) everything else. The top-performing sectors were Real Estate, which gained +1.94%; Utilities, which gained +1.05%; and Information Technology, which gained +0.27%. Meanwhile, the worst-performing sectors were Consumer Discretionary, which fell -3.23%; Materials, which fell -2.04%; and Industrials, which fell -2.01%. The top-performing subsectors were real estate management and building. Meanwhile, household appliances and textiles were among the worst-performing subsectors. Southbound Stock Connect volumes were 3X pre-stimulus levels as Mainland investors bought a net $3.7 billion worth of Hong Kong-listed stocks and ETFs, including the Hong Kong Tracker ETF, the Hang Seng China Enterprise ETF, and Alibaba, Tencent, SMIC, Xiaomi, and Meituan.

Shanghai, Shenzhen, and the STAR Board all closed lower by -0.24%, -1.10%, and -0.46%, respectively, on volume that increased by +16.74% from yesterday, which is 95% of the 1-year average. 1,923 stocks advanced, while 3,047 declined. Volatility, value, and large caps “outperformed” (i.e. fell less than) value, growth, and small caps. The top-performing sectors were Utilities, which gained +1.37%; Consumer Staples, which gained +1.1%; and Real Estate, which gained +0.84. Meanwhile, the worst-performing sectors were Information Technology, which fell –2.76 %; Consumer Discretionary, which fell –2.18 %; and Materials, which fell -1.55%. The top-performing subsectors were agriculture, power, and catering. Meanwhile, motorcycles, electronic components, and auto parts were among the worst-performing subsectors. Northbound Stock Connect volumes were above average. CNY and the Asia dollar index fell versus the US dollar. Treasury bonds were rallied. Copper and steel fell.

New Content

Read our latest article:

New Drivers For China Healthcare: AI Med-Tech Innovation, Cancer Treatment, & Favorable Balance of Trade

Please click here to read