Powell’s Pessimistic Press Conference Panics Vacation Packages Investors

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The timing of Powell’s aggressive press conference couldn’t have been worse for Asian markets, as many investors have gone on vacation or are packing their bags for Chinese New Year. Investors were unnerved by Powell’s comments about the possibility that interest rates would rise at each of the seven Fed meetings, contrary to the consensus for three or four rate hikes.

Stock markets in Asia were generally risk-free, minus the small gains of Indonesia and the Philippines. South Korea was hit hard overnight by the Kospi -3.5% (-13% YTD) while the growth Kosdaq hit -3.73% (-18.74% YTD). Taiwan chose the right day to be on vacation.

With Southbound Stock Connect closed, the Hang Seng missed buying support from mainland investors as it fell -1.99% led by internet/tech/growth sectors. Volume was up 1% from yesterday, which is just 84% of the year-on-year average as the fallers outpaced the aggressors 10 to 1. Hong Kong’s most heavily traded by volume were Tencent -2.24%, Alibaba HK -7.19% and Meituan -6.93%. Analysts have been very conservative about Alibaba’s next financial release, due after Chinese New Year. Usually the Q4 calendar year is strong because of Singles Day, so we’ll see. Reuters reports that Tencent is pushing to take online gaming company Douyu (DOYU US) private.

The mainland market was not immune to the downdraft as Shanghai -1.78%, Shenzhen -2.87% and STAR Board -2.81% while sales grew +3.83% from yesterday, which only 78% of the 1-year average. The breadth was dire as only 240 stocks rose while 4,102 fell. Today was the last day for trading in Northbound Connect, as foreign investors took -$2.296 billion from mainland equities. Take a low volume day and throw in the big pullback from foreign investors as a contributor to the market action.

Six large mainland mutual fund families announced they would take a stake in their own mutual funds as a sign of confidence to their shareholders. The investment amounts range from two companies that invested just $8mm, while one company invested a healthy $157mm.

The mainland’s most traded stock was Kweichow Moutai, which gained +0.51% after announcing it will build a new factory to make their fiery alcohol. Industrial profits in December were up 4.2% year-on-year from +9% in November. In 2021, industrial profits were up 34.3%, although the release was clearly off-market. Prime Minister Li noted that Chinese exports tend to slow down, requiring policy adjustments. Task #1 should increase household consumption, which has been weak due to the draconian covid measures. Treasuries sold off, CNY fell from 6.32 to 6.36 from 6.32 as the US$ rose and copper gained +0.58%.

Last night’s exchange rates, prices and returns

  • CNY/USD 6.37 vs 6.32 yesterday
  • CNY/EUR 7.11 vs 7.13 yesterday
  • 10-Year Treasury Yield 2.73% vs. 2.71% Yesterday
  • Yield on 10-Year China Development Bank Bond 2.99% vs. 2.96% Yesterday
  • Copper price +0.58% overnight

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