Key News
Asian equities had another significant sell-off overnight, as President Donald Trump and his advisors remained immune to financial pain as they stayed on script concerning tariffs over the weekend. Export and auto-heavy Japan suffered another significant sell-off as Mainland China and Hong Kong reopened following Friday’s market holiday and the Chinese government’s tariff retaliation. Indonesia, Thailand, and Vietnam were temporarily spared the pain due to the market holiday.
Global equity markets have baked in the worst-case scenario in a shockingly quick time period as any investor utilizing leverage has been carried out feet first. After the market closed, Central Huijin Investment Co, the Chinese government’s sovereign wealth fund focused on financial assets, announced it was “optimistic” about China’s capital markets and had “increased its holdings of exchange-traded open-end index funds (ETFs) and will continue to increase its holdings in the future.” Mainland China A shares futures are currently up +2% based on this news.
Before the Hong Kong and Mainland China markets opened, The People’s Daily published a commentary on the policy action that the Chinese government will be enacting. Obviously, U.S.-listed China stocks had already suffered a significant sell-off on Friday as Hong Kong and Mainland China futures plummeted. Thus, the article was a non-factor in the worst market day I’ve witnessed, accompanied by extraordinarily high volumes and absolutely horrific breath. An actual policy announcement didn’t occur though it is coming. Here are the key points:
- “Monetary policy tools such as reserve requirement ratio cuts and interest rate cuts have sufficient room for adjustment and can be introduced at any time.”
- “Fiscal policy has made it clear that it will increase expenditure intensity and speed up expenditure progress, and fiscal deficits, special bonds, special treasury bonds, etc. will still have room for further expansion depending on the situation; extraordinary efforts will be made to boost domestic consumption.”
- “The abuse of tariffs by the United States will have an impact on China, but “the sky will not fall” as U.S. tariffs will “inevitably have a negative impact on China’s exports in the short term and increase downward pressure on the economy.”
- “However, we should see that China is a super-large economy…. China’s exports to the U.S. have dropped from 19.2% in 2018 to 14.7% in 2024.” “Many products in the United States are highly dependent on China.”
- “In the first two months of this year, domestic demand, such as investment and consumption, grew better than expected, exports initially withstood the test, and the manufacturing and service PMIs continued to pick up, with an expected growth of more than 5% in the first quarter.”
Let’s hope the Chinese government doesn’t wait long to implement domestic consumption stimulus. The Chinese government has, over the last several months, mentioned addressing several structural issues that have weighed on domestic consumption and explain China’s very high savings rate. These include:
- Demographic Challenges
- Migrant Workers’ Limited Rights (Hukou System)
- Social Safety Net: Social Security, Healthcare, Unemployment Insurance, and Retirement Benefits.
Unfortunately, there was nowhere to hide overnight. However, Mainland investors did buy $2 billion worth of Hong Kong-listed stocks and ETFs overnight, as Southbound Stock Connect accounted for 39% of Hong Kong’s turnover. Today’s market action was a shock to me.
Is there an off-ramp from the trade war escalating? One indication that a path exists would be the new seventy-five-day grace period for TikTok. We’ve argued that the company is 60% owned by foreign, predominantly U.S., private equity investors; thus, making it a zero would be a public relations disaster as PE firms’ investors represent your local charity’s foundation and your alma mater’s endowment.
The disingenuous view that the U.S. has all the power and China has zero levers to pull is hard to explain, considering China retaliated. The U.S. emphasis on goods leaves out the reality that the U.S. is the largest exporter of services. Could countries tariff our services? The NY Federal Reserve wrote back in May 2020 that “Although the large bilateral deficit in 2017 was driven by the fact that U.S. exports to China were only a quarter as large as Chinese exports to the United States, total sales (exports plus multinational sales) by U.S. firms in China were $505 billion—only 11 percent lower than total sales by Chinese firms in the U.S. market ($570 billion).” Does DC know this?
The Wall Street Journal’s Mike Colias and Ryan Felton wrote a great article about Ford and General Motors titled “The Peril of Trump’s Tariffs For Two American Icons.” Despite being perceived tariff beneficiaries, the article provides an in-depth look at their supply chain for auto parts and operations in Mexico, Canada, and South Korea. It is ironic that the two companies that are supposed to benefit from tariffs will be among those that could get hurt.
The Hang Seng and Hang Seng Tech indexes fell -13.22% and -17.16%, respectively, on volume that increased +114% from Friday, which is 364% of the 1-year average. Two stocks advanced while 498 declined. Main Board short turnover increased by +86% from Friday, which is 438% of the 1-year average, as 18% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Dividends and value “outperformed” (meaning fell less than) growth and small caps. All sectors were negative, led lower by Technology, which fell -20.65%, Healthcare, which fell -19.78%, and Consumer Discretionary, which fell -16.45%. All subsectors were negative, led lower by consumer durables apparel, national defense, and technology hardware were among the worst-performing subsectors. Southbound Stock Connect volumes were 6X pre-September 2024 stimulus levels as Mainland investors bought a net $1.98 billion worth of Hong Kong-listed stocks and ETFs, led by Tencent and Xiaomi, which were very large net buys, and CNOOC and SMIC, which were moderate net buys, Meituan and Pop Mart, which were moderate net buys, XPeng, a moderate/large net sell, and Kuiashou, which was a small net sell.
Shanghai, Shenzhen, and the STAR Board fell -7.34%, -10.79%, and -9.22%, respectively, on volume that increased by +39.66% from Friday, which is 132% of the 1-year average. 82 stocks advanced, while 5,054 stocks declined. Value, dividends, and large caps “outperformed” (meaning fell less than) the growth factor and small caps. All sectors were negative, led lower by tech -9.98%, discretionary -9.05%, and communication -8.75%. Agriculture was the only positive sub-sector, while Internet, software, and industrial machinery were among the worst-performing subsectors. Northbound Stock Connect volumes were well above average. CNY and the Asia Dollar Index fell versus the U.S. dollar. Treasury bond prices rose. Copper and steel fell.
Live Webinar
Join us on Thursday, April 10, 2025 at 10 am EDT for:
Tariff Briefing and Q&A With KraneShares
Please click here to register
New Content
Read our latest article:
New Drivers For China Healthcare: AI Med-Tech Innovation, Cancer Treatment, & Favorable Balance of Trade
Please click here to read
Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- Copper Price -6.15%
- Steel Price -2.75%
Read the full article here
