Asian investors took profits overnight after yesterday’s massive move.
Asian investors took profits overnight after yesterday’s massive move. Hong Kong opened higher but retreated later in the session amid Hong Kong chief executive Carrie Lam’s speech defending the new security law and several new cases of coronavirus. Mainland investors were strong buyers of Hong Kong stocks on the weakness in the 17th consecutive day of net purchasing. Volume leader Semiconductor Manufacturing slipped -8.85% after surging 20% yesterday in advance of its STAR Board IPO tomorrow. Tencent was off -0.77% as CEO Pony Ma sold 500k shares, Alibaba HK popped +3.11%, Ping An Insurance +1.28%, and Meituan Dianping -3.14%.
Mainland China gained though investors favored growth companies. Shenzhen rose +1.17% while Shanghai gave up some gains and slid from the morning’s high to close +0.37% on very strong volumes that were +10% higher than yesterday. DnD, drugs and drinks, had a strong day with Kweichow Moutai +5.5%. Financials were led lower by brokerages after the widely followed Security Times said investors should be “rational”. Real estate also succumbed to profit taking after yesterday’s monster move on reports that one province would curtail home purchases. We’ll see whether value rebound over the last several days will resume. Northbound Connect volumes were the strongest in recent memory as foreign investors bought $1.402B worth of Mainland stocks, bringing the four-day total to $7.636B.
One stat from yesterday’s note was that, according to CICC, only 2% of China’s household wealth is invested in stocks. Expanding on this though, only 2% of household wealth is invested in mutual funds versus 66% in real estate. For comparative purposes, 26% of US household wealth is in real estate, 6% in mutual funds, and 23% in stocks.
Already, the nattering nabobs of negativity are comparing China’s 2014/2015 equity rise and collapse to today. As one broker noted, overnight margin debt is now only 2% of market cap versus 4.5% in 2015 and the latter figure does not include significant amounts of off-balance sheet lending which stoked the rise. Regulators have tightened margin requirements since then, eliminating the off-balance sheet lenders. Shanghai’s P/E ratio is currently 19 versus a peak of 41. Shenzhen’s P/E ratio is higher at 52 as investors have begun to bid up growth companies versus value companies. It is clear that retail investors have become interested in the Mainland market based on the huge volumes we’ve seen of late. Several technical analysts have noted the strong breakout though we are apt to see pullback at some point, which is healthy.
E-commerce company Pinduoduo (PDD US) was a standout for its weakness yesterday in a sea of green.
