Asian Equities Lower, Except for Taiwan; Taiwan Semiconductor Beats Expectations

Asian equities followed the lead of Wall Street and traded lower overnight, with one notable exception – Taiwan. The Taiwan stock market pulled off a James Bond move, edging up by 0.07% before Taiwan Semiconductor’s post-close earnings announcement. Taiwan Semiconductor’s earnings beat expectations, providing a boost to the market.

The US 10-year Treasury Yield is inching closer to 5%, leading to a stronger US dollar. As a result, both China’s Renminbi and the Asia Dollar Index fell against the greenback. Moreover, ongoing US political dysfunction and Middle East tensions weighed on investors’ risk appetite.

In other news, Country Garden failed to make a $15 million offshore bond coupon payment, technically putting the company in default. However, it is expected that the payment will eventually be made.

The Chinese electric vehicle (EV) ecosystem was impacted by Tesla’s post-US close earnings miss. Despite BYD’s solid preliminary results announced yesterday, Hong Kong shares of BYD fell by 3.65%. Other Chinese EV companies, such as XPeng, Li Auto, and Nio, also saw declines in their stock prices. Additionally, Mainland China’s CATL hit a 52-week low, falling by 1.93%. CATL’s Q3 results were below expectations, although it is worth noting that in Mainland China, semi-annual results are considered more important than quarterly results.

Foreign investors sold -$1.6 billion worth of Mainland stocks via Northbound Stock Connect, with the majority of selling focused on popular growth (non-SOE) stocks, including CATL, Kweichow Moutai, BYD’s Mainland listing, Ping An Insurance, and Wuliangye Yibin.

Meanwhile, in Hong Kong, the cell phone camera maker Sunny Optical gained 8.74%, but overall, the market faced challenges. JD’s poor outlook continued to weigh on the space. Rumors circulated that the Chinese government may take a stake in Tencent, but these reports came from an unknown news source. It is more likely that early investor Prosus (Naspers) may sell Tencent shares.

Mainland investors were net buyers of Hong Kong stocks and ETFs via Southbound Stock Connect. Despite this, the market experienced a decline, even though September/Q3 economic data showed signs of China’s economy slowly rebounding. Many economists have raised their GDP estimates for Q4 and 2023 in response to the positive data. Furthermore, real estate data for Tier 1 cities like Beijing and Shanghai indicated property price increases in September, reaffirming the importance of location in the real estate market.

As a result of today’s market action, the probability of the implementation of a policy bazooka has increased. The Hang Seng and Hang Seng Tech indexes fell by 2.46% and 1.90%, respectively, on higher trading volume. Large caps and growth factors underperformed, while small caps and value factors performed relatively better. The technology sector was the only positive sector, while discretionary, financials, and communication sectors all saw declines. Among the positive sub-sectors were technical hardware and food, while insurance, auto, and retailing were the worst performers.

In terms of trading volume, Southbound Stock Connect volumes were light to moderate, with Mainland investors buying $229 million of Hong Kong stocks and ETFs. The Tracker ETF was a net buy, while Meituan was a small net buy, and Tencent was a small net sell.

In Mainland China, the Shanghai, Shenzhen, and STAR Board indexes fell by 1.74%, 1.51%, and 0.04%, respectively. All sectors in Mainland China experienced declines, with staples, discretionary, and energy sectors seeing the largest drops. Computer hardware and semiconductor sectors were the only positive sub-sectors, while liquor, auto, and agriculture sectors performed poorly.

Northbound Stock Connect volumes were moderate, with foreign investors selling a significant amount of Mainland stocks worth -$1.599 billion. Changan Auto was a moderate net buy, while Midea and Wuxi AppTec were small net buys. On the other hand, Kweichow Moutai, Wuliangye, and Ping An were moderate to large net sells.

The Chinese yuan (CNY) and the Asia dollar index both fell against the US dollar. Treasury bonds and steel were sold, while copper remained flat.

Overall, despite positive economic data and real estate performance, the Asian equities market faced downward pressure due to various factors.