Asian Markets and the Looming Fed Decision
Asian markets presented a mixed picture in anticipation of the US Federal Reserve’s anticipated interest rate cut, characterized as "hawkish." While South Korea exhibited strong performance, Pakistan experienced a significant decline of -3.41%, despite maintaining an impressive year-to-date return of +80%. Interestingly, there was limited discussion surrounding the potential for a corresponding rate cut by the People’s Bank of China (PBOC), with the Loan Prime Rate announcement due the following day and the Medium-Term Lending Facility rate date still undisclosed. Such a move by the PBOC could potentially mitigate the depreciation of the Chinese yuan against the US dollar. However, the PBOC’s recent intervention to curb speculation on the 10-year Chinese Treasury bond suggests a more cautious approach. The yield on this bond experienced a dramatic intra-day swing, plummeting to a record low of 1.721% before rebounding to 1.765% after the PBOC’s intervention, representing a significant 250 basis point fluctuation. This action may indicate a reluctance to cut rates, prioritizing stability in the bond market.
Hong Kong and Mainland China Markets Rebound Amidst Volatility
Hong Kong and Mainland China’s stock markets experienced a rebound, recovering from recent declines following the post-Politburo meeting surge. This recovery reinforces the overall upward trend observed since January, characterized by successively higher highs and higher lows, albeit punctuated by periodic pullbacks. The prevailing market sentiment suggests an underlying resilience, despite the inherent volatility. This resilience is further bolstered by policy announcements aimed at enhancing market stability and promoting shareholder returns.
Dividend Stocks Surge on SOE Reforms and Buyback Activity
Dividend-paying stocks enjoyed a significant rally, fueled by the State-owned Assets Supervision and Administration Commission (SASAC) issuing guidance aimed at bolstering the market value management of state-owned enterprises (SOEs). This directive included a reduction in administrative fees associated with dividend payments. Coupled with the "recommendation" for increased dividend payouts by SOEs, this policy shift contributed to the positive market sentiment towards dividend stocks. Furthermore, reports from Mainland media indicated that over two hundred companies have initiated share buyback programs using bank loans, following a policy announcement in September encouraging such activity. This combination of dividend incentives and buyback activity boosted investor confidence in the market, particularly towards companies demonstrating shareholder-friendly practices.
Tech Sector Gains Ground on Semiconductor Buzz and Potential Alibaba Dividend
Semiconductor stocks experienced a surge, driven by speculation regarding President Biden’s potential tightening of export controls. The anticipated impact of these stricter regulations suggests a potential benefit for non-US semiconductor companies, contributing to the positive momentum in this sector. Furthermore, the Hong Kong market saw robust performance in the technology sector, albeit with lower trading volumes compared to US-listed Chinese ADRs. Brilliance Auto, a prominent player in the automobile sector, also saw its stock price climb following the announcement of a substantial dividend increase, generating double-digit yields for investors. Concurrently, mainland investors injected $266 million into Hong Kong stocks through the Southbound Stock Connect program, indicating continued confidence in the Hong Kong market. Speculation emerged regarding Alibaba potentially using proceeds from the sale of its department store chain, Intime, for a special dividend distribution.
Market Breadth and Sector Performance in Hong Kong
The Hang Seng Index and the Hang Seng Tech Index registered gains of +0.83% and +1.82% respectively, with trading volume declining -18.52% from the previous day, representing 82% of the one-year average. The market witnessed a positive breadth, with 358 stocks advancing and 121 declining. Short-selling activity on the Main Board decreased -46% compared to the previous day, equivalent to 75% of the one-year average, with short turnover accounting for 14% of total turnover. Notably, value stocks and large-cap stocks outperformed growth stocks and small-cap stocks, indicating a preference for established and stable companies. All sectors within the Hong Kong market closed higher, with technology, utilities, and healthcare exhibiting particularly strong performance. The leading sub-sectors were buildings, automobiles, and machinery, while the chemical industry, industrial conglomerates, and paper lagged behind. Southbound Stock Connect volumes remained relatively stable, hovering just above pre-stimulus levels observed in September.
Mainland China Market Performance and Sector Dynamics
The Shanghai, Shenzhen, and STAR Board indices displayed divergent performance, posting gains of +0.62%, +0.58%, and +1.47% respectively, on trading volume down -9.89% from the prior day, which represented 133% of the one-year average. A mixed trend was observed in individual stock performance, with 1,773 stocks advancing and 2,127 declining. Similar to the Hong Kong market, value stocks and large-cap stocks outperformed growth stocks and small-cap stocks in Mainland China. The technology, communication services, and utilities sectors led the gains, while real estate and industrials experienced slight declines. Within these sectors, semiconductors, internet, and computer hardware emerged as the top-performing sub-sectors, while office supplies, forestry, and catering lagged behind. Northbound Stock Connect volumes remained slightly above average, suggesting sustained interest from foreign investors. The Chinese yuan and the Asian dollar index weakened slightly against the US dollar, while Treasury bond prices and commodity prices, including copper and steel, also declined.
