China market update: Electric vehicle stocks rise, EU tariffs called ‘preliminary’

Main news

Asian shares celebrated the suppression of US “mild” inflation and the US Fed holding rates steady as Pakistan outperformed the region and is up +23% year-to-date.

Despite the headlines, China’s electric vehicle (EV) import tariffs from the European Union turned out to be lighter than expected. However, more importantly, they are definitely “preliminary”, ie, ready for negotiation. Perhaps some copies of The Art of the Deal were sold in Brussels? The German government is likely to fight the tariff proposal because German automakers have invested heavily in China. Meanwhile, French, Spanish and Italian automakers have little market share to lose in retaliation. Retaliatory Chinese tariffs are likely to target Airbus, French luxury goods, Spanish wine, etc. As mentioned yesterday, car manufacturing requires a large workforce, which is why it has become such a hot issue for governments around the world. And, yes, without question, China’s government has supported domestic auto companies.

Hong Kong bounced around the room but rallied to close above the 18,000 level. The market was led higher by growth stocks, as the most traded stocks by volume were Tencent, which gained +2.43%; BYD, which gained +5.82%; Meituan, which gained +3.64%; Alibaba, which gained +0.47%; and energy giant CNOOC, which gained +1.23%. Hong Kong-listed companies are required to submit their daily purchases after the market closes. Tencent bought 2.66 million shares today and Meituan bought 4.35 million shares. Maybe they should file before the market opens as it might change investor behavior. Mainland investors continue to buy Hong Kong-listed stocks and ETFs with net purchases worth $511 million today via Southbound Stock Connect.

Technology was the best performer in Hong Kong, where the sector gained +2.22%, and in mainland China, where the sector gained +1.13%. Semiconductors led technology higher as Broadcom’s strong financial results added to AI enthusiasm.

Mainland China was close to posting small losses on small news. One of China National’s favorite ETFs, ticker 510300, saw a slight increase in volume last Thursday, Friday and Tuesday (Monday was a holiday) due to market weakness. It’s hard to say, but could it be an indication of greater support?

The Hang Seng and Hang Seng Tech indices gained +0.97% and +1.30% respectively, with volume down -6.77% from yesterday, which is 105% of the 1-year average. 308 shares suffered while 170 shares advanced. Main Board short turnover fell -8.07% from yesterday, which is 97% of the 1-year average, as 16% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by hedging market maker ETFs). All factors were positive with growth and small caps outperforming value and large caps. The best performing sectors were Utilities with +3.35% growth, Technology with +2.21% and Health with +1.99%. Meanwhile, Materials fell -1.55%, Real Estate fell -0.3%, and Energy fell -0.26%. The best performing subsectors were cars, utilities and technical equipment. Meanwhile, household materials and products were among the worst. Southbound Stock Connect volumes were light as mainland investors bought a net $511 million worth of Hong Kong-listed stocks and ETFs, including BYD and Meituan, which were moderate net buys.

Shanghai, Shenzhen and the STAR Board changed to close -0.28%, -0.62% and +0.54% respectively, with volume up +8.53% from yesterday, which is 89% of the 1-year average. 1776 shares advanced, while 3177 shares fell. The growth factor managed to stay in the green, while large caps fell less than small caps. The best performing sectors were Technology with +1.12% growth, Utilities with +0.76% and Consumer Discretionary with +0.17%. Meanwhile, real estate fell -1.58%, materials fell -1.50%, and consumer goods fell -1.49%. The top performing subsectors were automobiles, semiconductors and communication services. Meanwhile, agriculture, construction machinery and retail were among the worst performers. Northbound Stock Connect volumes were moderate as foreign investors were net sellers of mainland-listed stocks. CNY and the Asian Dollar Index were down against the US dollar. The treasury curve flattened. Steel and copper won.

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Last night’s performance

Last night’s exchange rates, prices and yields

• CNY for USD 7.25 vs. 7.24 yesterday
• CNY for 7.82 euros against 7.83 yesterday
• 1-day government bond yield 1.30% vs. 1.30% yesterday
• 10-year government bond yield 2.27% vs. 2.28% yesterday
• China Development Bank 10-year bond yield 2.38% vs. 2.39% yesterday
• Copper price 0.43%
• Steel price 0.19