The Council of State declares 2024 the “Year of Consumption Promotion”, Weekly Review

A week in review

• Asian stocks were mostly lower this week as a rate hike by the Bank of Japan (BOJ) coupled with weaker-than-expected economic data from the United States shocked global markets. Despite this, Hong Kong outperformed the region with a positive return.
• Yum China Holdings reported its second-quarter financial results on Tuesday, with adjusted net income up +7% year-over-year and earnings per share up +17%.
• China on Wednesday released mixed trade data for July, with exports falling short of expectations while imports topped expectations, offering little sign of improved consumer sentiment.
• Shenzhen continued to pursue the Third Plenum’s policy priority of creating more affordable housing when a state-owned enterprise (SOE) in the city began purchasing residential buildings for conversion.

Top news

Asian stocks ended the week on a positive note as yesterday’s US economic data eased fears of a hard landing and Asian currencies gained against the US dollar.

Would you believe the yen is at the same price it was last Friday? The yen is off its July 3 high of 161, which makes me wonder if we are out of the volatility woods yet, even though markets are giving off a “What, am I worried?” attitude.

The top economic headline was China’s July CPI of 0.5%, beating estimates of 0.3% and June’s 0.2%. Meanwhile, the Producer Price Index (PPI) fell -0.8% year-on-year compared with expectations of -0.9% and June’s -0.8%. Deflation fears, particularly among consumers, have weighed on sentiment, so today’s data was a small step in the right direction.

After the close of trading, the People’s Bank of China (PBOC), China’s central bank, held a press conference where it reiterated that it would trade government bonds in the secondary market to combat massive demand from retail investors, fueled by the lack of animal instincts on the mainland. The PBOC viewed the economic challenges as a good sign and was ready to provide further monetary support.

The State Council Information Office press conference on “Promoting High-Quality Development of Service Consumption” was not covered by regional media or trade offices. As our trader friend Dave says, “The market doesn’t care, you don’t care,” but I would like to highlight some positives as the conference was a follow-up to the State Council’s “20 Key Tasks” that will be implemented to stimulate the economy.

The press conference was attended by officials from the Ministry of Commerce (MoC), the National Development and Reform Commission (NDRC), the Ministry of Civil Affairs, and the Ministry of Culture and Tourism. It is important to remember that the Third Plenum identifies problems and provides solutions at a high level, although it does not solve them, as implementation takes place in basic government agencies.

Key information from the State Council press release:

• The State Council has declared 2024 as the “Year of Consumption Promotion” after July 30^t meeting which “stressed the need to increase domestic demand with particular emphasis on stimulating consumption, and the emphasis of economic policies should be shifted towards supporting people’s livelihoods and promoting consumption.”
• “In the first half of this year, consumption expenditure on services accounted for 45.6% of per capita consumption expenditure, up 1.1 percentage points year-on-year.”
• “…the urbanization rate of the country’s permanent population has reached 66.2%, and the country is still in a period of rapid urbanization.”
• Focus on “key areas of service consumption such as food and accommodation, home services, and care for the elderly and children.”
• Mention was made of the issuing of “consumer vouchers” to stimulate consumption in the context of domestic tourism.
• “…the catering industry is also the largest category in total retail sales of consumer goods,… The national catering income was 5.29 trillion yuan, a record, an increase of 20.4% year-on-year, and the contribution rate to the growth of total retail sales of consumer goods reached 28.2%. In the first half of this year, the national catering income reached 2.6 trillion yuan, an increase of 7.9% year-on-year.” Catering means restaurants. It is obvious that the Chinese like to eat and eat out!

IMO beneficiaries: domestic travel e.g. Trip.com, restaurants/catering e.g. Meituan, seniors = healthcare. I assume more consumption related policies are coming.

Hong Kong had a good day, although it closed at a daily high, falling short of yesterday’s strong performance by US-listed Chinese stocks. Growth stocks and sectors had a good day as the automotive and electric vehicle (EV) ecosystem outperformed in July, down month and year, but 43% of car sales in July were EV/hybrids, down from 41% in June, leading BYD +3.18%, Li Auto +5.45%, Xpeng +3.57% and NIO +3.1%. The back-and-forth between mainland China and the EU over electric vehicles intensified after China filed a complaint with the World Trade Organization (WTO).

Real estate was the best performing sector in mainland China, up 1.17%, and Hong Kong, up 2.37%, following the affordable housing news in Shenzhen that we covered yesterday.

The top-traded Hong Kong stocks by value were Tencent, up +0.49% for a 12th consecutive day of mainland buying via the Southbound Stock Connect (18 of the last 19 days), China Mobile, down -1.31% after yesterday’s earnings results, Alibaba, up +1.7%, Meituan, up +1.53%, and energy giant CNOOC, up +1.32%. Hua Hong Semiconductor fell -6.22%, and Semiconductor Manufacturing International (SMIC) gained +4.94% after yesterday’s earnings results.

The continental market had its lowest volume in a year with small losses as the national team had another day off based on thin volumes in its favourite ETFs. Mega-caps in the financials and energy sectors were an oasis of green in a sea of ​​red.

Kweichow Moutai’s second quarter ended successfully, with shares rising 0.43%.

Bilibili will report Q2 financials on August 22nd. Yesterday I incorrectly stated that it was August 16th. Thank you Mary for pointing out my error. Please contact me anytime! As my wife would like to explain in more detail and detail, I am far from perfect!

The Hang Seng and Hang Seng Tech indices gained +1.17% and +2.08% respectively on volume that was down -14.35% from yesterday, which is 86% of the yearly average. 321 stocks rose while 151 fell. Main Board short turnover fell -12.26% from yesterday, which is 81% of the yearly average, as 16% of turnover was short turnover (HK short turnover includes ETF short volume, which is driven by market maker ETF hedges). Growth and large-cap outperformed value and small-cap. All sectors rose, led by Real Estate up 2.38%, Materials up 1.99% and Technology up 1.79%. Automotive, Media & Tech Equipment were the top performers, while Telecommunications, Food/Staples and Pharmaceuticals were the worst performers. Southbound Stock Connect trading volume was light as mainland Chinese investors purchased $292 million of Hong Kong stocks and ETFs, with Tencent making a moderate net purchase, Hua Hong Semi a small net purchase and China Mobile a small net sale.

Shanghai, Shenzhen and STAR Board fell -0.27%, -0.66% and -0.48% respectively on volume that was down -9% from yesterday, 70% of the yearly average. 1,430 stocks rose, while 3,407 fell. Value and Large-Cap “outperformed”/fell less than Growth and Small-Cap. Real Estate & Energy were the only positive sectors at +1.17% and +0.51%, while Communications was down -2.24%, Healthcare -1.5% and Industrials -0.82%. Real Estate, Oil/Gas and Motorcycles were the best performing sub-sectors, while Education, Media Culture and Office Supplies were the worst performers. Northbound Stock Connect volumes were light as foreign investors were net sellers of mainland stocks, with Zijin Mining, Vanke and Wuxi AppTec making small net purchases while Nhu, Foxconn and Will Semiconductor made small net sales. Treasuries fell. CNY and the Asian dollar index gained against the US dollar. Copper rose, steel held steady.

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Yesterday’s performance

Yesterday’s exchange rates, prices and yields

• CNY per USD 7.17 vs 7.17 yesterday
• CNY per EUR 7.83 compared to 7.83 yesterday
• Yield on 10-year government bond 2.20% vs. 2.18% yesterday
• China Development Bank’s 10-year bond yield 2.26% vs. 2.23% yesterday
• Copper price: 0.68%
• Steel price: 0.00%