Consumer support finally arrives, with subsidies on big-ticket items benefiting JD.com, weekly review
CLN
Weekly Review
- Asian stocks followed Wall Street’s bearish trend this week, with Taiwan underperforming on weakness in semiconductors and a shutdown for most of the week due to a typhoon, although India managed a small gain.
- China’s central bank, the PBOC, has delivered a series of interest rate cuts across the curve this week following the third plenum of monetary policy meetings.
- Disappointing earnings reports from Tesla and Google weighed on names in China’s internet, technology and electric vehicle (EV) ecosystem this week as investors demanded more evidence of AI’s impact on revenues.
- At the same time, conflicting narratives around the US elections have also impacted offshore markets, although we continue to reiterate that Trump’s tariff demands are part of a negotiating strategy with China.
Main news
Asian stocks ended a tough week mostly higher, with the exception of Taiwan, which reopened down -3% after being closed for two days due to Typhoon Gaemi.
Yesterday, the National Development and Reform Commission (NDRC) announced that half of the RMB 300 billion long-term government bonds will be used to support a 15% subsidy for “individual consumers to purchase 8 types of household appliances, including refrigerators, washing machines, TVs, air conditioners, computers, water heaters, stoves, and range hoods.” Mainland-listed home appliance companies surged, including Gree Electric Appliances, which gained +6.53%, Midea Group, which gained +5.79%, and Haier Smart Home, which gained +8.3%. These three companies were also net-bought via Northbound Stock Connect, indicating that I am not the only one who has noticed this. The largest e-commerce player in the home appliance space is JD.com, which jumped +3.02% in Hong Kong compared to yesterday’s ADR gain of +2.21%.
At the same time, subsidies for electric vehicles and new energy vehicles (NEVs) will be increased from RMB 10,000 to RMB 20,000, and subsidies for gasoline/internal combustion cars will be increased from RMB 7,000 to RMB 15,000. Electric vehicles and automobiles rose in Hong Kong, with BYD gaining +0.68%, Li Auto gaining +1.91%, Great Wall Motor (GWM) gaining +1.63%, Geely Auto gaining +0.64%, Xpeng gaining +1.74%, and NIO gaining +0.15%. In mainland China, the world’s largest battery maker CATL gained +0.86% and electric vehicle giant BYD gained +1.82%.
CATL announced that its first-half net profit increased by +11% to RMB22.9 billion and its second-quarter net profit increased by +13.4% to RMB12.35 billion. However, second-quarter revenue fell by -13.2% to RMB87 billion. The remaining RMB150 billion will be used for industrial upgrades, including elevators and clean technologies.
It’s been a busy week for the NDRC. In addition to the grants, it also announced support for the issuance of infrastructure real estate investment trusts (REITs). After the close, the Shanghai government announced a RMB 100 billion fund to support technology companies, including semiconductors, AI, robots and robo-taxis.
The first fiscal stimulus package specifically focused on domestic consumption following the pandemic received virtually no coverage in the Western media.
Against the backdrop of weak investor positioning and next week’s Politburo meeting, which will focus on economic policies, I believe an interesting opportunity presents itself. Mainland Chinese investors seem to agree with me, as they bought $1.12 billion worth of Hong Kong-listed stocks and ETFs today.
The most traded stocks in Hong Kong were Tencent, which gained +0.91%, China Mobile, which fell -2.68%, Meituan, which gained +0.475%, China Construction Bank, which fell -0.55%, and AIA, which gained +1.67%. Mainland investors noticed the growth support that pushed growth sectors/stocks higher.
There was another nice spike in volumes in national team-favored ETFs in the afternoon as the market wobbled. Clearly the gas pedal was pressed, but nothing like yesterday. I’ll put another chart on Twitter (@ahern_brendan).
Relations between India and China are warming somewhat. The Associated Press noted that “India and China have agreed to work urgently to secure the withdrawal of troops from their disputed border.” Meanwhile, China’s cleantech ecosystem surged yesterday, with India removing restrictions on Chinese solar, wind and electric vehicles.
A Chinese media source noted that China’s smartphone sales in the second quarter increased by +8.9% YoY, led by Vivo, Huawei, and Oppo. However, Apple’s sales fell by -3.1% YoY as the company dropped out of the top 5 smartphone sales in China. Recent iPhone price cuts are expected to boost demand in the second half of the year. In the first half, smartphone sales reached 140 million, representing a growth of +7.7% YoY.
The Hang Seng and Hang Seng Tech indices gained +0.10% and +0.66%, respectively, on volume down -1.01% from yesterday, which is 102% of the 1-year average. 307 stocks gained while 163 stocks declined. Main Board short sales turnover increased +31.60% from yesterday, which is 129% of the 1-year average, as 22% of the turnover was short sales (Hong Kong short sales turnover includes ETF short sales volume, which is determined by market makers’ ETF coverage). Growth and small-cap sectors outperformed value and large-cap sectors. The best performing sectors were industrials, which gained +2.37%, materials, which gained +1.60%, and healthcare, which gained +0.85%. At the same time, utilities fell by -0.99%, real estate by -0.63%, and financials by -0.25%. The best performing subsectors were capital goods, basic materials, and consumer durables. At the same time, telecommunications, food and beverages, and banks were among the worst performers. Southbound Stock Connect volumes were moderate, with mainland investors buying a net $1.12 billion of Hong Kong-listed stocks and ETFs, including the Hong Kong Tracker ETF, which was a very large buy, the Hang Seng China Enterprise ETF, which was a large/moderate net buy, the Hang Seng Tech ETF, which was a large/moderate net buy, and Tencent, which was a moderate net buy. Meanwhile, China Mobile was a large net sell.
Shanghai, Shenzhen and the STAR Board gained +0.14%, +1.43% and +0.84%, respectively, on volume up +3.04% from yesterday, which is 74% of the year-to-date average. 4,168 stocks advanced while 788 stocks declined. Growth stocks and small caps outperformed value and large caps. The best-performing sectors were Consumer Discretionary, which gained +2.17%, Materials, which gained +1.23%, and Technology, which gained +0.66%. Meanwhile, Utilities fell -1.85%, Financials fell -0.94% and Consumer Staples fell -0.66%. The best-performing sub-sectors were Appliances, Motorcycles, Aerospace and Military. Meanwhile, telecommunications, banking and energy were among the worst performers. Northbound Stock Connect volumes were muted as foreign investors sold Chinese stocks including Kweichow Moutai, Sevenstar and CATL. However, Haier, Gree and Midea were net buyers. The Treasury yield curve flattened. The CNY and the Asia Dollar Index fell against the US dollar. Copper and steel gained.
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Last night’s performance
Chart 1
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Chart 4
Chart 5
Last night’s exchange rates, prices and yields
- CNY for USD 7.25 vs 7.22 yesterday
- CNY for EUR 7.87 vs 7.84 yesterday
- 10-year government bond yield 2.19% vs. 2.22% yesterday
- China Development Bank 10-year bond yield 1.94% vs. 1.94% yesterday
- Copper price: 0.52%
- Steel prices: 0.81%
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