Mainland Benchmarks Edge Higher, Small Caps Outperform

MNI (London) - The major Chinese equity indices nudged higher on Wednesday, with focus remaining on policymaker support (both delivered and the expected pipeline), while the major HK indices ticked lower.

• Small cap outperformance remained evident on the mainland, with the CSI 1000 adding the best part of 5%.
• A negative bias surrounding tech names in the wake of Snap’s after-hours U.S. earnings report probably provided some headwinds for HK benchmarks. Focus on Alibaba’s impending earnings report was also noted.
• Newswires noted that Chinese companies have been ramping up their share buybacks in the wake of government guidance on the matter, while speculation surrounding a potential jump in January’s loan/credit data and M&A activity provided further background support for the mainland.
• The continued government funding push for the property sector provided some background support for mainland developers, although some negative brokerage moves more than offset the policy-related support for some names.
• Banks struggled as desks pointed to rotation into higher beta names on the back of expectations re: deeper market support. A downtick in CGB yields would have added further pressure.
• EV makers benefitted from government support geared towards exports for the sector.
• Yum China moved higher on its latest quarterly sales metrics.
• Net inflows for mainland equities via the HK-China Stock Connect links moderated on Wednesday (~CNY1.7bn), although a seventh consecutive round of net inflows was lodged.
• ETF flow picked back on Wednesday, with some channels experiencing record volume. A reminder that ETFs are the favoured vehicle of the “national team.”
• After hours saw a surprise move atop the CSRC, with a hardliner bought in to head the regulatory body. A reminder that policymakers have promoted a focus on cracking down on illegal trading activity in recent weeks, while the slow drip feed of equity-specific support has disappointed market participants. These factors probably help explain the ousting of the former head.