A Heavy Start To The Week, Hang Seng Closes Sub-15,000

Chinese equities fared poorly to start the week, the CSI 300 shed 1.6% come the close, while the Hang Seng lost 2.3%. Both closed off of worst levels.

• The latter closed below 15,000 for the first time since Oct ‘22 and printed fresh ’24 lows in the process. Related option flow was a probable downside catalyst.
• The A/H share premium metric hit a ~15-year high.
• The lack of movement in the latest round of Chinese LPR fixings was seen as a potential contributor to the sell off given the well-documented economic worry, even though no change in the fixings was widely expected. Still, note that liquidity injections are expected ahead of the Lunar New Year break. Comments from analysts run in state-back media outlets pointed to a potential pre-LNY RRR cut.
• More broadly, BBG suggested that “scepticism over Chinese assets is spreading beyond stocks, with investors expecting the yuan and government bonds to underperform in a year when the Federal Reserve’s dovish pivot is set to buoy emerging markets.”
• Property names continued to struggle.
• Analysts at J.P. Morgan presented a cautious outlook for the China property sector in 2024, with sales projected to fall a further 10%.
• Gaming names were pressured as the government concluded its feedback period re: well-documented draft rules including tighter industry oversight.
• Weak consumption trends seemed to weigh on food and beverage names, while share dilution via a H-share listing of one name in the space added further pressure.
• China Merchants Bank benefitted from Q4 earnings.
• Flow-wise there was seemingly light inflows for mainland equities via the HK-China Stock Connect links (CNY1.0bn), ending a run of six consecutive days of net sales via those links.