China Market Update: Healthcare & Technology Rally Continues "Two-Session" Policy Support

 China Market Update: Healthcare & Technology Rally Continues "Two-Session" Policy Support

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 Equities of Asia were higher, led by better performances in Taiwan and South Korea. Mainland China and Hong Kong had the key sessions, circling the room to post small gains on higher volume above their 1-year averages.

Despite the high volume, it was an important night ahead of the release of key economic targets and implementation policies following China's "two-session" meetings, which included the Chinese People's Political Consultative Conference (CPCC), which began today. and the National People's Congress (NPC), which will begin tomorrow. There are expectations for a 2024 GDP target of 5%, a budget deficit of 3%, RMB 1 trillion in government bond issuance, continued pressure on real estate prices and the sector as a whole, and supportive fiscal and monetary policy. Consumption policy support will focus on autos and household appliances, based on recent government releases and their relative weakness compared to services and low-cost goods. Anything more than that would be an upside surprise. Prime Minister Lee will deliver a reading of the government's economic review,but he will not provide Q&A after "two sessions," breaking with a thirty-year tradition.

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Healthcare had a good day, up +1.53% in Mainland China and +3.56% in Hong Kong, with technology up +1.01% in Mainland China and +1.87% in Hong Kong, as two sessions are likely to get more policy support. Hong Kong's top-traded stocks by value were Meituan, which rose +3.51%, Xpeng, which fell -4.63% on the announcement of a price cut, and Lee Auto, which reported electric vehicle environmental Lowering the system and closing up -10.71% were Tencent, which fell -0.43%, Alibaba, which fell -1.3%, energy giant CNOOC, which fell +3.34%, and Wuxi Biologics, which “ Two Sessions” added +11.7% on policy speculation.

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Real estate was the top performing sector in both markets, falling -3.12 percent in mainland China (only 11 mainland stocks in the MSCI -1.1% indices) and -4.19% in Hong Kong (only 10 stocks in the MSCI index), following rumors that SOE developer Wenke had taken part in a loan extension from a mainland asset manager, which the latter denied. Wencke's short-term bonds did not move, although longer-term maturities were sold. The South China Morning Post noted that Henderson Land, a Hong Kong-based developer, traded flats after selling 138 units in 4 hours with 30 buyers and 4,400 inquiries per unit. Hong Kong recently lifted restrictions on property valuations, including stamp duty for non-residents.

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The move likely signals a downward trend in Hong Kong's real estate market and headlines of doom and gloom over Hong Kong's high-end mansions selling at low prices. Significantly, mainland China managed small gains despite foreign investors selling $980 million of mainland-listed stocks through Northbound Stock. It also indicates that the national team took the day off.

Last week, we touched on the headlines following comments from US politicians and already skyrocketing tariff hikes to prevent Chinese EVs from being imported into the US. The Financial Times made an interesting point on this topic, noting that global sales of Chinese EVs and hybrids have been strong, increasing by +36% in 2023 to 7.7 million units from 5.7 million units in 2022. Why strong sales? According to Umicore's chief executive, Mathias Miedreiech, "They're just good cars, and people buy them." Having driven the BYD EV minivan in Shenzhen, I would agree with his comments on the quality of the vehicles. It seems strange that American automakers are not partnering with Chinese auto companies or licensing their technology.

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Overlooked in the EV debate is the success of China's automakers' plug-in hybrids, as BYD's February 2024 sales were 43,000 EVs and 66,000 plug-in hybrid EVs. I had the opportunity to test several BYD EVs and hybrid SUVs, all of which were sharp-looking vehicles. Chinese hybrids (or their technology leased to American automakers) would solve the reason why EV sales have been limited in the US. America is a big country, which means long drives and families larger than 4 can't fit comfortably in a sedan. Despite the recent spring-like weather here in the New York area, cold weather still takes its toll on most batteries.

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The Hang Seng and Hang Seng Tech indexes closed up +0.04% and -0.38%, respectively, on volume that fell -12.28% from Friday, or 108% of the 1-year average. 205 shares rose in price, while 271 declined. Mainboard short turnover fell -3.76% from Friday, 112% of the 1-year average, as 18% of turnover was short business (note that Hong Kong short turnover includes ETF short volume), which is driven by ETFs of market makers (hedging). Growth factors and large caps outperformed value factors and small caps. The top performing sectors were healthcare, (+3.56%), energy, (+1.9%), and technology, (+1.87%). Meanwhile, real estate fell -4.39%, consumer discretionary -1.03%, and financials -0.84%. The top performing sub-sectors were pharmaceuticals, energy, and household products. Meanwhile, autos, food, and consumer services were among the worst performers. Southbound Stock Connect had higher volume as mainland investors bought a net $468 million of Hong Kong-listed stocks and ETFs, including ZTO, which was a small net buy, and Meituan and CNOOC, which were large net buys. Meanwhile, Li Auto had huge net sales, and China Merchants Bank and Tencent had much smaller net sales.

The Shanghai, Shenzhen, and STAR boards added +0.41%, +0.18%, and +0.37%, respectively, with turnover up +2.14% from Friday, 124% of the 1-year average. 2,011 stocks rose, while 2,930 stocks fell. Growth factors and large caps outperform value factors and small caps. The top performing sectors were energy, up +3.17%, utilities, up +2.38%, and healthcare, up +1.53%. Meanwhile, real estate fell -3.12%, financials -1.06%, and consumer staples -0.8%. The top performing sub-sectors were oil and gas, pharmaceuticals, and coal. Meanwhile, real estate, insurance, and diversified financials were among the worst performers.

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Northbound stock Connect volume was moderate as foreign investors sold $980 million worth of mainland stocks, including WuXi AppTec, Foxconn, and LONGI Green Energy. However, appliance makers Midea, Gree, and Sevenstar were smaller net buys. Wuxi AppTec had small net sales, Foxconn and Longi Green Energy had medium net sales. The CNY was lower against the US dollar, while the Asia Dollar Index gained slightly. Treasury bonds rallied. Copper gained slightly, while steel fell.