Election fears bought by Chinese portfolio managers

Main news

Asian stocks, excluding Japan, closed lower.

Hong Kong and mainland China faced several headwinds heading into the trading day, and what I like to say was a kitchen sink type of situation. AMD’s disappointing financial results, released after the US close yesterday, weighed on the semiconductor industry. Huahong Semiconductor closed -4.63% lower, while Semiconductor Manufacturing International (SMIC) fell -7.32% in Hong Kong and -7.02% in Mainland China.

The EU has been implementing electric vehicle (EV) tariffs and anti-subsidy taxes on China for five years, with a tariff of 20.70% for cooperating companies and 35.30% for non-cooperating companies. The news shocked Hong Kong-listed BYD, down -0.67% (17% tariff), Li Automobile down -2.51%, Nio down -6.58%, Geely Automobile down -2.96% (18.8% tariff). The Great Wall of China has fallen. -2.72%, XPeng fell -3.92%. Tesla will be subject to a 7.80% tariff.

PetroChina released its results yesterday, falling -1.10% in mainland China and -0.34% in Hong Kong, as investors sold on major banks and insurance companies ahead of results to be released after market close. This weighed on the mood. Agricultural Bank of China’s net profit increased by +5.88% (YoY) and ICBC’s net profit increased, resulting in strong third quarter performance despite low interest rate headwinds on net margin income Today’s pessimism seems overdone. Bank of China’s net profit increased by +4.38%, Bank of Communications’ net profit increased by +1.2%, and China Construction Bank’s net profit increased by +3.79%.

Insurance company China Life reported an impressive year-on-year growth in revenue of +54.8%. Also, after the market close, home appliance manufacturer Midea reported a significant decline in sales, down 68% from the previous year, although net profit increased by 15%. However, the company should benefit from Singles’ Day and subsidies for purchasing home appliances.

Hong Kong-listed growth stocks fell with no notable news as investors appeared to be wary of them due to the US election.

I would argue that yesterday’s Reuters economic stimulus article was seen as “nothing new”, but it is indicative of what is to come. In a speech today, he said China should not emulate as some of the money could be used for “helicopter money” in developed countries, but added that “short-term stimulus is needed to stabilize the economy.” We need a countermeasure,” he said, making his views clear. Meanwhile, some of the problems weighing on domestic consumption are structural, facing challenges in ensuring adequate and sustainable housing, pensions and social security. ”

Mainland investors were net sellers of Hong Kong-listed stocks and ETFs through Southbound Stock Connect, as the Hong Kong Tracker ETF saw the bulk of the net shorting worth -$614 million. There was a rare bright spot for real estate in mainland China, as Shenzhen home sales rose sharply in October, reaching levels not seen since December 2008. Shanghai also reported last weekend’s highest trading volume this year, according to October data. It looks very strong. Luckin Coffee beat analysts’ expectations in its open release ahead of the U.S. market.

Tomorrow, the “official” manufacturing PMI (September 49.8, expected 49.8) and non-manufacturing PMI (September 50, expected 50.3) will be released.

One of the first things I learned when I visited mainland China in early 2013 was that hybrid mutual funds are popular there to cushion the volatility of stocks. We see foreign investors alienated by the U.S. election, skepticism about Beijing’s stimulus efforts, the outperformance of U.S. tech stocks relative to global stock markets, including China and emerging markets, and at the expense of China. We have talked about overweighting Japan and India. Asia region. Exhibit A is yesterday’s fade-out of US ADRs following the Reuters stimulus news, again not necessarily “new news” but a strong indication of what could be coming.

We asked professional investment trust managers in China to react to the September 24 incident.^th Monetary Policy Bazooka and September 26th^th Politburo release? September 23rd^rdthe average equity position of 8,813 mainland China investment trusts in mainland China was 64.85% year-to-date through September 23.^rd Average 65%. From September 24th^ththe average position rose to 67.04%, while as of yesterday it was 66.57%. The fund has never had such a high equity allocation since the COVID-19 zero was lifted in late 2023. As you can see, this is across big data sets, so we can confidently say that portfolio managers have allocated or allowed more allocations to mainland stocks. Their stock profits run.

Another method is to look at the total assets under management (AUM) of all mutual funds in mainland China, including equity, balanced/hybrid, and bond funds (the “other assets” category, warrants, and bond funds are not included). (there is no total because there is no total). There are several others). Since China does not have the social safety net of developed countries, households save a lot of money, which is why the allocation of cash and bonds is so high in addition to the $45 trillion in bank deposits. It becomes. At the end of Q1 2024, 16% of assets under management were in mainland equities, compared with 53.04% in bonds and 18.4% in cash. As of the end of the second quarter, mainland stocks accounted for 15.05%, bonds accounted for 53.58%, and cash accounted for 18.21%. At the end of the third quarter, the company’s equity ratio was 17.94% stocks, 48.61% bonds, and 19.49% cash. Again, the big picture is changing. My favorite childhood movie line from Clint Eastwood is, “You have to ask yourself one question: Are you changing?” Well, are you?

The Hang Seng Index and Hang Seng Tech Index fell -1.55% and -2.38%, respectively, against a volume increase of +8.04% from the previous day, which corresponds to a 1-year average of 136%. 96 stocks rose in price, and 395 stocks fell. Short selling volume on the main board increased by 12.05% from yesterday, and 12% of the trading volume was short selling volume, which is 105% of the average for the past year. (includes short selling volume). Value stocks and small-cap stocks declined less than growth stocks and large-cap stocks. All sectors were negative, with Healthcare (-3.32%), Consumer Discretionary (-2.25%), and Materials (-2.14%) leading the decline. The only positive subsectors were food/consumables and technology hardware, while semiconductors, pharmaceuticals, and consumer durables were the worst subsectors. Southbound Stock Connect volume was 1.5x average as mainland investors sold $614 million of Hong Kong stocks and ETFs, Alibaba moderate/large net long, Xiaomi small net long, Tencent was a very small net buy, while Hong Kong Tracker’s ETF was a large net sell, CNOOC and Meituan were a moderate net sell, and SMIC was a small net sell.

Shanghai, Shenzhen, and STAR Board -0.61%, +0.04%, and -1.70% respectively, and the trading volume decreased by -10.42% from yesterday, which is equivalent to 210% of the 1-year average. The number of rising stocks was 1,788, and the number of declining stocks was 3,207. Value stocks and small-cap stocks declined less than growth stocks and large-cap stocks. The best-performing sectors were real estate (+0.7%), technology (+0.4%) and communications services (+0.31%), while finance -0.88%, energy -0.82% and healthcare – – became. 0.72%. The top subsectors were general industry, power generation, and education, while insurance, office supplies, and soft drinks were the worst subsectors. Northbound Stock Connect trading volume was twice the average. The CNY and Asian dollar index rose against the US dollar. Government bonds fell. Copper and iron increased.

Upcoming webinars

Join us on November 12th at 11am ET for the event below.

Leverage the key drivers driving private equity buyout funds through public equity

Click here to register

new content

Read our latest articles:

KBA
CraneShares Vocera MSCI China A ETF
: China Rally – Is there more room for A shares?

Click here to read

last night’s performance

Last night’s exchange rates, prices and yields

• CNY/USD 7.12 vs. 7.13 yesterday
• Chinese Yuan/Euro 7.71 vs. 7.72 yesterday
• The 10-year government bond yield is 2.16% (2.16% yesterday)
• National Development Bank of China 10-year bond yield 2.24% (2.24% yesterday)
• Copper price +0.20%
• Steel price +0.15%