April 25, 2024

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Health Care & Technology Rally, Expected “Two Sessions” Policy Support

5 min read

Key News

Asian equities were largely higher as Taiwan and South Korea outperformed. Mainland China and Hong Kong had choppy sessions, bouncing around the room to post small gains on high volumes that were above their 1-year averages.

Despite the high volumes, it was a quiet night in advance of the release of key economic goals and the implementation policies following China’s “Two Sessions” meetings, comprised of the Chinese People’s Political Consultative Conference (CPCC), which started today, and the National People’s Congress (NPC), which will start tomorrow. Expectations are for a 2024 GDP target of 5%, a budget deficit of 3%, RMB 1 trillion in government bond issuance, continued emphasis on real estate prices and the sector as a whole, and supportive fiscal and monetary policy. Consumption policy support will be focused on autos and household appliances, based on recent government releases and their relative weakness compared to services and lower-value goods. Anything exceeding this will be a surprise to the upside. Premier Li will provide a readout of the government’s economic assessment, though will not provide a Q&A after the “Two Sessions” breaking a tradition in place for thirty years. It will be difficult to know the rationale for the decision, though it provides fodder for the nattering nabobs of negativity.

Health care had a strong day, gaining +1.53% in Mainland China and +3.56% in Hong Kong, along with Technology, which gained +1.01% in Mainland China and +1.87% in Hong Kong, as likely recipients of further policy support from the Two Sessions. Hong Kong’s most heavily traded stocks by value were Meituan, which gained +3.51%, Xpeng, which fell -4.63% on a price cut announcement, Li Auto, which followed the electric vehicle ecosystem lower and closed down by -10.71%, Tencent, which fell -0.43%, Alibaba, which fell -1.3%, energy giant CNOOC, which gained +3.34%, and Wuxi Biologics, which gained +11.7% on the “Two Sessions” policy speculation.

Real estate was the worst-performing sector in both markets, falling -3.12% in Mainland China (only 11 Mainland stocks in MSCI
MSCI
indices) and -4.19% in Hong Kong (only 10 stocks in MSCI indices), after a rumor that SOE developer Vanke ran into an issue extending a loan from a Mainland asset manager, which was subsequently denied. Vanke’s short-term bonds did not move, though longer-dated maturities sold off. The South China Morning Post noted that Henderson Land, a Hong Kong-based developer, traded flat after selling 138 units in 4 hours with 30 buyers and 4,400 inquiries per unit. Hong Kong recently eliminated property price curbs, which included a stamp duty for non-residents. The move likely marks the bottom in Hong Kong’s real estate market and the doom and gloom headlines of Hong Kong’s Peak mansions selling for lower prices. It is worth noting that Mainland China managed small gains despite foreign investors selling -$980 million worth of Mainland-listed stocks via Northbound Stock. This also indicates that the National Team took the day off.

Last week, we touched on US politicians’ comments and the subsequent headlines on raising the already sky-high tariffs to prevent Chinese EVs from being imported into the US. The Financial Times had an interesting take on the topic, noting that Chinese EVs and hybrids have seen strong sales globally, up +36% in 2023 to 7.7 million units from 2022’s 5.7 million. Why the strong sales? “They are simply good cars, and people buy them,” according to Mathias Miedreiech, Chief executive of Umicore. Having driven in a BYD EV minivan in Shenzhen, I would agree with their comment on the quality of the vehicles. It seems strange that US automakers are not partnering with Chinese auto companies or licensing their technology. Overlooked in the EV debate is the success of China auto makers’ plug-in hybrids as BYD’s February 2024 sales were 43,000 EVs and 66,000 plug-in hybrid EVs. I had the opportunity to examine several BYD EVs and hybrid SUVs that were all sharp-looking vehicles. Chinese hybrids (or their technology leased to US auto makers) would solve the reason why EVs have had limited sales in the US. The US is a large country, which means long drives and families larger than 4 cannot fit in a sedan comfortably. Despite the recent spring-like weather here in the New York area, cold weather still has an adverse impact on most batteries.

The Hang Seng and Hang Seng Tech indexes diverged to close higher by +0.04% and -0.38%, respectively, on volume that declined -12.28% from Friday, which is 108% of the 1-year average. 205 stocks advanced, while 271 declined. The Main Board short turnover declined -3.76% from Friday, which is 112% of the 1-year average, as 18% of turnover was short turnover (remember Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The growth factor and large caps outperformed the value factor and small caps. The top-performing sectors were Health Care, which gained +3.56%, Energy, which gained +1.99%, and Technology, which gained +1.87%. Meanwhile, Real Estate fell -4.39%, Consumer Discretionary fell -1.03%, and Financials fell -0.84%. The top-performing subsectors were pharmaceuticals, energy, and household products. Meanwhile, autos, food, and consumer services were among the worst-performing. Southbound Stock Connect volumes were high as Mainland investors bought a net $468 million worth of Hong Kong-listed stocks and ETFs, including ZTO, which was a small net buy, Meituan and CNOOC, which were large net buys. Meanwhile, Li Auto was very large net sell, and China Merchants Bank and Tencent were very small net sells.

Shanghai, Shenzhen, and the STAR Board gained +0.41%, +0.18%, and +0.37%, respectively, on turnover that increased +2.14% from Friday, which is 124% of the 1-year average. 2,011 stocks advanced while 2,930 stocks declined. The growth factor and large caps outperformed the value factor and small caps. The top-performing sectors were Energy, which gained +3.17%, Utilities, which gained +2.38%, and Health Care, which gained +1.53%. Meanwhile, Real Estate fell -3.12%, Financials fell -1.06%, and Consumer Staples fell -0.8%. The top-performing subsectors were oil & gas, pharmaceuticals, and coal. Meanwhile, real estate, insurance, and diversified financials were among the worst-performing. Northbound Stock Connect volumes were moderate as foreign investors sold a net -$980 million worth of Mainland stocks, including WuXi AppTec, Foxconn, and LONGi Green Energy. However, appliance maker Midea, Gree, and Sevenstar were small net buys. Wuxi AppTec was a small net sell, Foxconn and Longi Green Energy were moderate net sells. CNY was off small versus the US dollar while the Asia dollar index made a small gain. Treasury bonds rallied. Copper made a small gain while steel fell.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

  • CNY per USD 7.20 versus 7.20 Friday
  • CNY per EUR 7.82 versus 7.80 Friday
  • Yield on 1-Day Government Bond 1.47% versus 1.44% Friday
  • Yield on 10-Year Government Bond 2.35% versus 2.37% Friday
  • Yield on 10-Year China Development Bank Bond 2.48% versus 2.50% Friday
  • Copper Price +0.04%
  • Steel Price -1.21%

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