Last week's stocks performance in Hong Kong is a vote of non confidence in the short term direction of markets. Hong Kong was down 4.5% on the week but Shanghai took the rate hike in stride and closed up for the third week in a row. The Hang Seng Index had it worst week in more than nine months with all sectors down. Its weakness may be an indication of investors, especially foreigners, wariness in regards to Chinese stocks.
| INDICES | 1 week | 4 weeks | YTD |
| Hang Seng Index | -4.5% | -6.0% | -0.9% |
| HS China Enterprises | -4.9% | -8.1% | -4.8% |
| FTSE/Xinhua A50 | 0.7% | 0.0% | 0.7% |
| Shanghai Composite | 1.0% | 1.3% | 0.7% |
| CSI 300 | 1.4% | 0.9% | -0.2% |
| US ETFs | |||
| EWH | -4.7% | -6.3% | -1.3% |
| FXI | -2.8% | -6.4% | -3.3% |
| PGJ | -0.6% | -0.6% | 3.7% |
On Thursday for instance, stocks that were up in Shanghai were down in Hong Kong. On the same day Petrochina (PTR) announced it was buying gas assets in Western Canada from Encana (ECA). In Shanghai the stock was up 0.6% on the news, while in Hong Kong it dropped 3% in the session. Also on Thursday, China Railway Group lost 3.9% in Hong Kong while it closed up 0.2% in Shanghai; Sinopec (SHI), down 3.3% in Hong Kong, flat in Shanghai; China Shenhua (OTCPK:CSUAY), down 3.4% in Hong Kong, up 1.6% in Shanghai; Minsheng Bank, down 4.4% in Hong Kong, up 1.7% in Shanghai.
On a weekly basis the divergence between Hong Kong and Shanghai is more apparent: The Hang Seng China Enterprises Index, which covers only "H" shares, is down 4.9% while the broad based Shanghai Composite Index is up 1%. All 40 constituents of HSCEI were down on the week. The HSCEI worst performers: China Railway, down 9.2% (up 0.8% in Shanghai), BYD (BYDDF.PK) down 9% (not listed in China); Guangzhou R&F Properties, down 9.6% (not listed in China); China National Building Materials, down 8.9% (not listed in China).
On Wednesday-- the first day of trading in Shanghai following the New Year holidays and one day following the announcement of a third interest rates hike since October, the so-called "property bubble" appeared to be deflating fast, with most developers stocks in Hong Kong and Shanghai dropping significantly. But the consensus was short lived. On Thursday and Friday most property developers in the CSI300 were up and closed higher on the week. Some moved quite sharply for a sector in danger of collapse: China Enterprises, up 10.5% on a 3-day week; Shanghai Zhangjiang, up 10.3%; Shenzhen Baoan, up 10.2%; COFCO Property, up 8.5%.
| SECTORS – CHINA | 1 week | 4 weeks | YTD |
| CSI300 Energy | -1.9% | -2.6% | -4.9% |
| CSI300 Materials | 1.1% | 1.7% | -5.0% |
| CSI300 Industrials | 1.4% | 5.8% | 4.6% |
| CSI300 Cons. Discretionary | 5.6% | 4.3% | 4.0% |
| CSI300 Cons. Staples | 3.2% | 2.6% | -0.9% |
| CSI300 Healthcare | 2.7% | -0.8% | -5.4% |
| CSI300 Financials | 0.7% | -2.5% | -0.1% |
| CSI300 Technology | 2.7% | 0.1% | -4.4% |
| CSI300 Telecom | 3.1% | 6.9% | 6.8% |
| CSI300 Utilities | 1.4% | 2.3% | 1.6% |
| SECTORS – HONG KONG | 1 week | 4 weeks | YTD |
| HS Financials | -2.3% | -5.3% | 0.0% |
| HS Utilities | -3.0% | -2.1% | -2.2% |
| HS Property | -8.9% | -10.7% | -4.7% |
| HS Commerce & Industry | -6.1% | -6.0% | -0.8% |
This week will give us a better indication of investors sentiments both outside and inside China. The CPI figures will be released on Tuesday and expectation is for a rise in inflation to 5.3%. The resolve of the PBOC to fight inflation is now well acknowledged by investors but the issue is the frequency of future interventions. Last week's bearishness of Hong Kong investors may indicate fears of more frequent credit tightening measures in China.
Since iShares FXI holdings are also part of HSCEI in most part, the ETF's performance has been similar with all stocks also on the downside. The difference in performance between HSCEI and FXI is due to the different weight given to the constituents.
The Shanghai Composite Index is the broadest base index encompassing all listed A and B shares listed in Shanghai. The CSI300 comprises the 300 largest A shares listed in Shanghai and Shenzhen. The Hang Seng China Enterprises Index covers 40 “H” shares issued by mainland companies listed in Hong Kong.The Hang Seng Index currently covers the 43 largest Hong Kong listed companies by capitalization. These HK listed companies include a number of mainland Chinese companies. EWH tracks the MSCI Hong Kong Index which is substantially different from the Hang Seng Index. iShares FXI tracks the FTSE/Xinhua 25 Index which includes the 25 largest mainland companies listed in Hong Kong.
Disclosure: Long CSI300. I have no positions in any other stocks mentioned, and no plans to initiate any positions within the next 72 hours.
