Late Rally, Lower 5-Year LPR Fixing Dominates Discussions

MNI (London) - Tuesday saw the CSI 300 add 0.2%, while the Hang Seng added 0.6%.

• The larger than expected fall in China’s 5-year LPR fixing didn’t really factor in until late in the day, with the major indices rallying into the close.
• The lack of immediate reaction can probably be attributed to questions re: short-term support provided by the move as existing Chinese mortgage rates only tend to reset once a year, usually on/around 1 January.
• Recent headline flow has pointed to the Shanghai & Shenzhen exchanges suspending the trading accounts of some quant funds.
• There had been talk of a crackdown on some quant trading strategies via newswire source reports in recent weeks, with authorities reportedly penning the blame for at least some of the recent stock rout on related activity.
• More granularly, an attempt to facilitate NIM preservation via the lack of movement in the 1-year LPR fixing provided some support for banks, along with exp. for increased mortgage-related activity post-5-Year LPR cut.
• Meanwhile, property names also seemed to benefit from the cut in the 5-year LPR fixing.
• Pharmaceuticals benefitted from a brokerage call re: cheap valuations after a tough start to ’24.
• Net HK-China Stock Connect flows were essentially neutral for the mainland.
• Some pockets of elevated ETF activity showed up, although the activity wasn’t as uniform as some of the recent examples, meaning that there was less/little speculation re: National Team involvement.