Mainland & Hong Kong See Profit-Driven Rotation

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Asian equities were largely off as China and India underperformed. China and, to a lesser extent, Hong Kong gave up morning gains as last week’s rotation/profit-taking from year-to-date winners to year-to-date losers accelerated in the afternoon session. Strong commodity price movements including copper’s nearly 4% move on the Shanghai Futures Exchange overnight drove the materials and energy sector higher.

The PBOC drained RMB 40 billion from the financial system via Open Market Operations overnight and left lending rates unchanged. Investors seem to be ignoring the PBOC’s advice last week to refrain from looking at open market operations and focus on interest rates, which have been relatively unchanged for a while now.

Online lenders will need to hold at least 30% of consumer loans themselves going forward to ensure they have some skin in the game. This was cited as a rationale for weakness in internet/e-commerce companies but isn’t this a good thing in the long run? Banks will be limited to lending 25% of reserves, which benefits bigger banks over smaller rivals. One Mainland broker kept their cool, remarking that today’s pullback was potentially driven by investors waiting for further clarity on the next Five Year Plan, which will be officially unveiled next month.

The Hang Seng lost -1.06% as volumes were over 200% of the 1-year average. Hong Kong volume leaders were Tencent, which fell -3.71% as Mainland investors were net sellers, China Mobile, which gained +3.53% after reporting January subscribers totaled 940mm, Xiaomi, which fell -5.38%, Meituan, which fell -5.52%, Kuaishou Technology, which fell -2.63%, Alibaba

HK, which fell -2.49%, HK Exchanges, which fell -0.79%, energy giant CNOOC, which gained +1.51%, Ping An Insurance, which fell -1.2%, and Zijin Mining, which gained +4.14% on strong commodity price movements.

China took the brunt of the afternoon selloff as Shanghai was down by -1.45%, Shenzhen dipped -2.11%, and the STAR Board fell -2.66%. Bigger year-to-date winners including alcohol, electric vehicles, clean energy, health care, and home appliances were all hit hard. However, like in Hong Kong, energy and materials outperformed. Foreign investors sold -$172 million worth of Mainland stocks today while bonds were off a touch as the curve steepened slightly along with CNY versus the US dollar.

Xiaomi denied reports it will get into the EV business. (TCOM, formerly is said to be exploring a Hong Kong listing.

FTSE Russell announced that seven STAR Board stocks will be added to their emerging markets index on March 22nd. FTSE will also be transitioning Alibaba from its US-listed share class to the company’s Hong Kong share class, which MSCI

is expected to do in the June…

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