Powell’s Dovish Comments Let Markets Fly

Key News

Asian equities had a strong day as Japan, China, Hong Kong, Taiwan, and South Korea posted impressive returns following US Fed Chairman Powell’s dovish comments, which raised investors’ risk appetite, especially toward growth stocks. The Hang Seng Index gained +2.79% led by internet stocks, which followed through on yesterday’s US rally. Hong Kong’s volume increased +18.51% from yesterday, which is 93% of the 1-year average while 2 stocks advanced for every 1 declining stock. The four most heavily traded stocks in Hong Kong by value were Tencent, which gained +4.52%, Meituan, which gained +9.13%, Alibaba HK, which gained +5.89%, and JD.com HK, which gained +10.98%. Muy bueno!

Despite today’s Wall Street Journal headline that “For Chinese Tech Stocks, No News Is Good News” there were several catalysts for yesterday’s US move and today’s follow-through. As we mentioned yesterday, Fidelity held an investor symposium highlighting the attractiveness of China internet. Meanwhile, UBS’ internet analysts recommended the space following similar moves last week from Goldman Sachs and as JD.com announced entering the European market via an employeeless store in the Netherlands. We’ll have to get our colleague and main man in Amsterdam Sjef to check it out. We also had last week’s report that Charlie Munger doubled his Alibaba stake in Q4 after doubling in Q3. No catalysts – bah humbug! As we’ve mentioned numerous times, a rally in the space will “force” big fund families to reduce their underweight to the names. Both Tencent and Meituan had outsized purchases from Mainland investors via Southbound Stock Connect. Remember Hong Kong has a big structured products market which tends to exacerbate moves to the upside and downside.

Growth stocks/sectors outpaced value stocks/sectors in both Hong Kong and China. The growth-oriented Shenzhen +1.42% and STAR Board +1.7% outpaced Shanghai’s +0.8% on volume flat from yesterday which is barely over the 1-year average while advancing stocks outpaced declining stocks 3 to 1. Catalysts for the rally were China’s 2021 car sales increased +4.4% in 2021 versus 2020 to 20.1mm cars sold according to Yicai Global and CAAM. Internal combustion engine car (gas guzzlers) sales declined -6% from 2020 to 17.2mm while EV sales increased 250% to 3mm. 2021’s forecast for EV sales is 5mm though my colleague Anthony believes this feels low from his conversations with companies. The report lit a fire under the clean technology sector as EV battery maker CATL was China’s most heavily traded stock by value gaining +5.28% followed by EV bus maker BYD +7.07% with Tianqi Lithium the 4^th highest volume traded +2.15%.

December PPI year over year was 10.3% versus expectations of 11.3% and November’s 12.9% while the December CPI was 1.5% versus expectations of 1.7% and November’s 2.3%. Efforts to rein in inflation especially commodity prices appeared to slowly be taking effect. After the Mainland close, December aggregate spending was RMB 2.37 trillion versus expectations of 2.4 trillion and November’s 2.61 trillion, new loans 1.13 trillion versus expectations of 1.25 trillion and November’s 1.27 trillion while M2 +9%. The loan data was touch light though it is apt to spur policymakers to step on the support gas pedal especially with the Olympics around the corner. In the short run, we should see the PBOC provide ample liquidity going into Chinese New Year’s.

Foreign investors bought $1.103B of Mainland stocks via the Northbound Stock Connect with a focus on growth versus value. Chinese Treasury bonds were flat, CNY appreciated slightly versus the US $ and copper rallied.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD 6.37 versus 6.37 Yesterday
• CNY/EUR 7.23 versus 7.22 Yesterday
• Yield on 10-Year Government Bond 2.80% versus 2.80% Yesterday
• Yield on 10-Year China Development Bank Bond 3.08% versus 3.08% Yesterday
• Copper Price +1.38% overnight