Going into last night’s market session, I was in a great mood.
My weekend reading of institutional research focused on China’s inexpensive valuations, under allocation from investors, China’s monetary easing in 2022 against the backdrop of Fed tightening, and the likely end of China’s internet regulation. I also caught a webinar from UBS Asset Management’s legendary portfolio manager Bin Shi who manages $25B of China’s dedicated equity strategies.
While Asia had a good night, China and Hong Kong underperformed. Alibaba’s filing of one billion new shares last Friday is rumored to be linked to early and large investor SoftBank unloading some of its stake. That may or may not be true.
We also had the US Commerce Department add thirty-three Chinese companies to an unverified red flag list including Wuxi Biologics , a highly regarded and widely owned global pharmaceutical company. Investors in Asia didn’t do a lot of homework on what the unverified list is as it simply states that the company needs to explain what equipment it imports from the US. This is exceedingly different than the entity list/Executive order list that bans foreign ownership. Wuxi tanked -22.
The Hang Seng Index and Hang Seng Tech were off -1.02% and -1.6% on volume +5.89% from yesterday which is 83% of the 1-year average. Value sectors managed a decent day as energy +1.96%, industrials +0.96%, financials -0.45% and materials -0.21% while healthcare -9.4%, discretionary -2.53% and tech -1.6%. Mainland investors in Hong Kong were fairly quiet as they were very small sellers of Tencent and small buyers of Meituan overnight via Southbound Stock Connect.
The US Commerce move weighed significantly on growth stocks in the Mainland market as Shanghai +0.67%, Shenzhen -0.24%, and STAR Board -2.4%. The markets came off their intra-day lows significantly as Shanghai was off -1.14%, Shenzhen -2.26%, and STAR -3.41% though there was talk of China’s national team buying stocks. Pension plans and insurance companies tend to buy Mainland stocks on weakness. Dubbed “The Plunge Protection Team”, these institutional investors are simply buying low.
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