“First, Support The Expansion Of Domestic Demand”

Key News

Asian equities were largely higher on light volumes and little news as Hong Kong and Mainland China outperformed.

Australia and the Philippines were closed for Christmas, while Hong Kong and Singapore had half days. Reuters reported that China will issue RMB 3 trillion of special purpose bonds versus expectations of RMB 1 trillion. The article further states, “The proceeds will be targeted at boosting consumption via subsidy programs…” The news from “sources” finally gives foreign investors what they want: consumption stimulus! It is important to note that the article was published after Hong Kong closed! What drove the Hang Seng to close above 20,000, led by growth stocks on strong volumes for a half day?

Mainland media had significant coverage of the National Financial Work Conference’s (NFWC) conclusion and subsequent Ministry of Finance (MoF) release stating that “more proactive fiscal policies should be implemented.” The positive release outlined six areas of focus for 2025, though the first one and the fact it is the first one are key. I am doing the bold and underline, though, on the MoF’s website, they used bold on the first bullet, a clear indication that they are telling us something not to be missed.

• “First, support the expansion of domestic demand.” Expanding pensions and medical insurance were included. Remember that China’s high saving rate is driven by the lack of a social safety net. The goal is to “vigorously boost consumption.”
• The others were “support the construction of a modern industrial system,” “support the protection and improvement of people’s livelihoods,” “support the integrated development of urban and rural areas,” “support ecological civilization construction,” and “support high-level opening up.”

The Reuters article is clearly related to the NFWC. I suspect this explains Hong Kong’s move, though it is impossible to know for certain. Hong Kong volumes for a half day were decent as Mainland investors accounted for 49% of Hong Kong turnover via Southbound Stock Connect after buying a healthy $672 million of Hong Kong stocks and ETFs. Alibaba gained +2.65% as an obvious consumption beneficiary, though the company’s Liu Zheng will take over as CFO at Ant Group. CFO plays a key role in an IPO.

Tencent fell -0.05% and Meituan fell -0.32%, off small, though growth names had a strong day in both markets. In Mainland China, Tencent’s Zhang Jun posted on WeChat that the recent news around gifting on WeChat was a rumor. No one told Weimob, as it gained +31% on a broker upgrade. In both Hong Kong and Mainland China, high-yielding mega-capitalization stocks such as banks, energy, and insurance companies performed well as China’s Treasury bonds had a rare down day. Why own a 10 10-year government bond at 1.72% when the Shanghai Composite yields 2.66%? National Team ETFs had at/above average volumes, though today’s really was quite broad, with small capitalization stocks outperforming.

It was recently recommended that I learn more about incoming Treasury Secretary Scott Bessent, who has a strong reputation, though I candidly didn’t know the particulars of his background. To educate myself and hear directly from him, I listened to two podcast interviews by RenMac Legends (42 minutes) and Capital Allocators (1 hour and 2 minutes). I recommend both podcasts, as the interviewers did a great job. His experience, including time with Jim Rogers, Jim Chanos, George Soros, and Stanley Druckenmiller, impressed me. Tariffs were not a topic in either podcast, though he is clearly a free markets person.

China did come up in the latter with Bessent appeared to be skeptical of the Chinese government’s ability to right the economy as President Xi is a “Leninist” with a priority on social measures versus economic growth. Starting in September, the 180 turn in the government’s economic policy should signal that the economy is job #1. I suspect they’ve not unleashed the stimulus hounds due to the tariff threat, though the stimulus should be leaking into the economy with plenty of dry powder to push the pedal as necessary.

As we mentioned yesterday, there are several strong signals from Trump (Xi’s inauguration invitation, no TikTok ban, removing outbound investment language from Congressional bill) that are being largely ignored by the media (look at today’s WSJ and FT for confirmation, all negative China stories despite the market ripping higher). If you have some plane, train, or automobile time, listen to the podcasts for yourself and let me know if you disagree and let me know.

The Hang Seng and Hang Seng Tech gained +1.08% and +1.12%, respectively, on volume down -33% from yesterday, which is 64% of the 1-year average. 348 stocks advanced, while 134 declined. Main Board short turnover decreased by -45% from yesterday, which is 45% of the 1-year average, as 11% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Growth and small capitalization stocks outperformed value and large capitalization stocks. The top sectors were technology, up +2.81%, real estate, up +1.98%, and energy, up +1.55%, while materials fell -0.17%. The top sub-sectors were technology hardware, petroleum, and household appliances, while consumer durables, household products, and non-ferrous metals were the worst. Southbound Stock Connect volumes were at pre-stimulus levels as Mainland investors bought +$672 million of Hong Kong stocks and ETFs, with ICBC a moderate/large net buy, Xiaomi a moderate net buy, Weimob, Tencent, SMIC, CNOONC, China Mobile, and Alibaba small net buys, and Meituan a moderate net sell.

Shanghai, Shenzhen, and the STAR Board gained +1.26%, +1.15%, and +1.54%, respectively, on volume down -14.8% from yesterday, which is 125% of the 1-year average. 3,759 stocks advanced, while 1,245 declined. Growth and small capitalization stocks outperformed value and large capitalization stocks. All sectors were positive, led higher by consumer discretionary, up +1.97%, financials, up +1.59%, and industrials, up +1.5%. The top sub-sectors were chemical fiber, marine, and energy equipment, while internet, forest, and leisure products were the worst. Northbound Stock Connect volumes were just above average. CNY and the Asia dollar index were off slightly versus the US dollar. Treasury bonds fell. Copper fell while steel rose.

Merry Christmas and Happy Hanukkah!

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

CNY per USD 7.30 versus 7.30 yesterday

CNY per EUR 7.59 versus 7.59 yesterday

Yield on 10-Year Government Bond 1.70% versus 1.70% yesterday

Yield on 10-Year China Development Bank Bond 1.76% versus 1.76% yesterday

Copper Price +0.41%

Steel Price +0.03%