Onshore & Offshore Diverge As Hong Kong Short Interest Rises

Key News

Asian equities were down overnight while the three markets that were closed Monday South Korea, Japan, Malaysia, and Taiwan played catch up to the downside as China was a rare regional bright spot.

The US Fed and government aren’t making any friends among global investors as the Fed’s interest rate hiking is wreaking havoc globally while US restrictions on semiconductor exports slammed Taiwan, which fell -4.35% as semiconductor heavyweight Taiwan Semiconductor fell -8.33% and South Korea’s Kosdaq finished down -4.15%. Yesterday was the first time many US market commentaries placed the US stock market fall directly on US policymakers. At some point, those same reporters will recognize many US government policies, such as trade tariffs and deglobalization are inflationary as our friend Brian pointed out recently.

Let me get off my soap box. Last night electric vehicle (EV) battery maker CATL (300750 CH) gained +5.97% after announcing that Q3 profit could triple. We also had the China Association of Automobile Manufacturers (CAAM) announce that 2.672 million cars were produced in September, which is +11.5% year over year, and sales of 2.61 million, which is +9.5% year-over-year. EVs are now 27.1% of sales as production increased +110% to 755 thousand while also selling 708 thousand, which is an increase of +93.9%. Also helping were government recommitments to China’s carbon reduction goals, with green energy technology having an increasing role.

After the close, September new loans and aggregate financing beat expectations and rose significantly. Policy support is clearly occurring as the PBOC relaunched the Pledged Supplementary Lending (PSL) which provides loans to support real estate developments. Mainland markets managed small gains while Hong Kong was off as COVID-19 restriction fears paired with the upcoming winter/flu season led to concerns about consumption. The Hang Seng Index and Hang Seng Tech were off -2.23% and -3.55% as growth and internet stocks were hit hard. Short selling accounted for 22% of Main Board turnover, which was down from yesterday’s 25%. The Hang Seng Index is abbreviated as HSI, which clearly stands for Huge Short Interest. Even shorts realized how embarrassing this situation is becoming as internet stocks’ short volumes fell, though Ping An Insurance had 47% of volume short today! The Hang Seng dipped below 17,000, which led to many warrants/structured products being liquidated, with the index closing at 16,832. Hong Kong-listed EV names were down despite the good news. A factor is CNY’s recent weakness versus the US dollar, as it closed -0.15% at 7.16. Mainland investors made a healthy purchase of Hong Kong stocks on the dip as Tencent (700 HK) bought 1.37 million shares today. Tencent has been buying 1 million shares a day since mid-August.

The Hang Seng Index and the Hang Seng Tech Index fell -2.23% and -3.55% on volume -4.1% from yesterday, which is 73% of the 1-year average. 115 stocks advanced, while 364 fell. Main Board short selling declined -13.09% from yesterday, which is 95% of the 1-year average, as 22% of all trading was short today. Value factors “outperformed” growth factors as small caps outperformed large caps. Utilities was the only positive sector gaining +0.36%, while discretionary -3.75%, communication -3.73%, and real estate -2.99% were all down. Wind, solar, nuclear, and utility sub-sectors outperformed, while liquor, retail, software, and semiconductors were among the worst. Southbound Stock Connect volumes were moderate/light as Mainland investors bought a healthy $397 million of Hong Kong stocks today, with Tencent a healthy buy, Li Auto a small buy, and Meituan a small net sell.

Shanghai, Shenzhen, and STAR Board were mixed +0.19%, +0.61%, and -0.51% on volume -9.93%, which is 57% of the 1-year average. 2,779 stocks advanced, while 1,753 stocks declined. Growth and value factors were mixed as large caps outpaced small caps. Top sectors were utilities +2.35%, materials +1.24%, and industrials +1.09% while real estate -2.75%, communication -1.53%, and healthcare -1.3% closed down. The top performing subsectors were lithium battery, electric grid, auto parts, and marine/shipping, while semiconductors, biotech, office product, and restaurants were among the worst. Treasury bonds were off, CNY was off -0.15% versus the US dollar to 7.166, and copper gained +1.63%.

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.17 versus 7.15 yesterday
• CNY per EUR 6.97 versus 6.94 on yesterday
• Yield on 10-Year Government Bond 2.74% versus 2.74% on yesterday
• Yield on 10-Year China Development Bank Bond 2.91% versus 2.91% on yesterday
• Copper Price +1.63% on yesterday