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China Market Update: Stocks Slip On Summer Slowdown Before Third Plenum

China Market Update: Stocks Slip On Summer Slowdown Before Third Plenum

Asian equities started the week lower on light volumes and little news as the summer slowdown appears to be setting in.

Hong Kong and Mainland China underperformed while Malaysia was closed for the Islamic New Year. Both markets were off on light volumes and poor breadth as investors’ expectations for economic policy support from next week’s Third Plenum appear to be low. The dismissive mood comes against the backdrop of slowing purchasing managers’ indexes (PMIs) and economic data, which one would anticipate raises the probability for policy support.

Another factor is the rising probability of a Trump second term as investors pause on increasing risk. For those concerned about Trump’s China policy, we recommend our webinar with Trump’s Ambassador to China Terry Branstad. There is also a summary of the conversation available here.

The People’s Bank of China (PBOC) announced a new arrow for its quiver as intra-day liquidity via repos and reverse repos was announced.

Hong Kong’s most heavily traded stocks by value were Tencent, which fell -0.32%, Alibaba, which fell -1.51%, Meituan, which fell -1.76%, AIA, which fell -1.55%, and Hong Kong Exchanges -2.04% though internet plays had a few bright spots with Kuaishou +2.23% on an analyst Buy rating, +0.29% , +0.52%, and Baidu, which was flat.

Clean tech was weak on Trump tariff concerns and NIO’s -3.89% decline after their CFO resigned for personal reasons.

Mega-caps were a rare bright spot in the Mainland market, which is an indication of the National Team’s intervention due to their impact on indices. Meanwhile, National Team-favored ETFs did not see a jump in volumes, unlike last week.

Mainland equities have been in a real funk since mid-May. Again, the thumbs-down from local investors should be on the radar for policymakers.

Semiconductors were a rare bright spot due to Will Semiconductor’s +4% gain after its first half 2024 preliminary financial results showed a net income increase of +754% year-over-year in dollar terms. Despite continued buybacks, maybe financial results will be too good for investors to ignore.

The Hang Seng and Hang Seng Tech indexes fell -1.55% and -0.84%, respectively, on volume that declined -1.12% from Friday, which is 87% of the 1-year average. 81 stocks advanced while 408 declined. Main Board short turnover increased +11.99% from Friday, which is 89% of the 1-year average as 18% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). All factors and sectors were negative. Only telecom services and utilities were positive while pharmaceuticals, media, and consumer services were among the worst-performing subsectors. Southbound Stock Connect volumes were light as Mainland investors bought a net $287 million worth of Hong Kong-listed stocks and ETFs, including ICBC and Sense Time, which saw small net buys.

Shanghai, Shenzhen, and the STAR Board fell -0.93%, -1.88%, and -0.91%, respectively, on volume that increased +1.65% from Friday, which is 70% of the 1-year average. 455 stocks advanced while 4,563 declined. Large caps and value stocks “outperformed” (i.e. fell less than) small caps and growth stocks. Utilities and energy gained +1.94% and +0.05%, respectively, while real estate fell -2.49%, health care fell -2.32%, and consumer staples fell -1.85%. The top-performing subsectors were motorcycles, power industry, and telecom. Meanwhile, education, shipping, and software were among the worst-performing. Northbound Stock Connect volumes were moderate as foreign investors were small net sellers of Mainland stocks, including Cypc, Kweichow Moutai, and BYD, which were small net buys and LXJM, HR, and Will Semiconductor were small net sells. Treasury bonds rallied. The US dollar strengthened versus CNY and the Asia Dollar Index. Copper gained while steel fell.

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