Industrial Profits Send Stocks Higher

Key News

Asian equities had a positive day on light volumes.

Mainland China and Hong Kong posted gains on light volumes ahead of China’s weeklong holiday starting on Friday. Markets jumped on the release of August industrial profits, rising +17.2% year over year versus July’s -6.7%, in another sign that China’s economy is rebounding (albeit slowly/incrementally). The PBOC released meeting notes of their quarterly Monetary Policy Committee that articulated the central bank’s efforts to support the economy through monetary policy and “focus on expanding domestic demand, boosting confidence, accelerating a virtuous economic cycle, and providing support for the real economy.”

Also helping sentiment was foreign investors’ net buying of Mainland stocks. Pharma stocks were the top sub-sector, and healthcare the best sector in both Hong Kong and Mainland China, following several US-listed biotech stocks flying on several successful drug studies/trials. Hong Kong internet stocks had a positive day following Alibaba’s logistics arm Cainiao filing for a Hong Kong listing yesterday. Shanghai and Shenzhen managed to rise above the 3,100 and 1,900 levels. The Shanghai and Shenzhen Stock Exchanges released rules that will limit insider selling while incentivizing paying dividends. Previously, rules limited parent companies from selling shares, which resulted in one hundred companies canceling planned share sales. IPOs have been limited as efforts to prevent more supply and increase demand equates to the government telling us to buy stocks. Evergrande was back in the news as their chairman is being investigated, though we should expect distressed players to be in the news whenever a bond coupon or principal payment is due. Overall, we’ll take the up day.

Do you know when China’s last recession was? 1993! Something to remember when the nattering nabobs of negativity call for the collapse of China’s economy.

China’s import of commodities has declined. The renminbi’s decline is a factor as the value of imports declines as the currency declines. A better tool is looking at the tonnage of imports, which has been shockingly resilient. China’s import of both oil and copper continues to increase, which runs counter to the common economic narrative. More work to do on this subject!

The Hang Seng and Hang Seng Tech gained +0.83% and +0.43% on volume -7.92% from yesterday, which is 66% of the 1-year average. 267 stocks advanced, while 198 declined. Main Board short turnover declined -0.95% from yesterday, which is 71% of the 1-year average, as 18% of turnover was short turnover. Value and growth factors were both off as large caps edged out small caps. The top sectors were healthcare +3.49%, tech +1.89%, and energy +1.25%, while materials -1.5%, industrials -0.13%, and real estate -0.06% were the worst. The top sub-sectors were pharma, semis, and insurance, while materials, food, and auto were the worst. Southbound Stock Connect volumes were light as Mainland investors bought +$470 million of Hong Kong-listed ETFs and stocks with Meituan, Tencent, and Kuiashou small/moderate net buys while CNOOC, China Mobile, and Innovent were small net sells.

Shanghai, Shenzhen, and STAR Board gained +0.16%, +0.39%, and +0.47% on volume +7.86% from yesterday, which is 82% of the 1-year average. 3,157 stocks advanced, while 1,576 stocks declined. The growth factor outperformed the value factor, while small caps outperformed large caps. The top sectors were healthcare +1.48%, tech +0.69%, and industrials +0.42%, while utilities -0.62%, energy -0.56%, and financials -0.49% were the worst. Tops sub-sectors were power generation equipment, pharma, and energy equipment, while precious metals, computer hardware, and highway industry were the worst. Northbound Stock Connect volumes were light/moderate as foreign investors bought +$246 million of Mainland stocks, with Longi seeing a large net inflow, Wuxi and Kunlun small/moderate net buys, while CATL, Zhongji, and Wuliangye were small/moderate net sells. CNY and the Asia dollar index were off small versus the US dollar. Treasury bonds rallied while copper and steel were off.

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