【Yuan Zhifeng Column】Significant Decline in Trading Volumes of Chinese and Hong Kong Stock Markets

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1) Market Outlook

Hong Kong stocks rose on Thursday, with turnover hitting a new low in over two months. Southbound funds turned net sellers and recorded net outflows from Tencent (700) for the fifth consecutive day. The Hang Seng Index is expected to consolidate in the short term, and investors are advised to buy on pullbacks.

2) Summary of Yesterday's China-Hong Kong Market Conditions

The Hang Seng Index opened 74 points higher on Thursday, then continued to rise, peaking at 375 points up at 25,267, a monthly high. It pared gains by the close, ending at 25,210, up 318 points or 1.3%. Turnover declined 25% from the previous day to HK$233.5 billion, the lowest in over two months. The June daily average turnover was HK$319 billion.

Southbound funds via Stock Connect turned net sellers, with outflows of approximately HK$4.2 billion. Meituan (3690) and Zhipu (2513) saw net inflows of HK$640 million and HK$490 million respectively. Net outflows were recorded for ETF tracker fund Yinfu (2800), Tencent (700), and Alibaba (9988) at HK$2.52 billion, HK$1.54 billion, and HK$1.10 billion respectively. Cumulative net inflows since July total HK$83.1 billion, compared to HK$27.1 billion in June.

The Hang Seng Index rose 1.3%, with 73 gainers and 20 decliners among constituents. China Aluminum (2600) surged over 6%, the best performer among blue chips. Sands China (1928) rose 5%. Meituan (3690) gained over 4%. China Hongqiao (1378), Geely Automobile (175), ENN Energy (2688), and Xinyi Glass (868) rose over 3%. ICBC (1398), China Construction Bank (939), Bank of China (3988), AIA (1299), China Life (2628), CITIC Limited (267), and CATL (3750) rose over 2%. Bank of China (Hong Kong) (2388) and CK Hutchison (1) rose nearly 2%. Nongfu Spring (9633) dropped over 5%, the worst performer. Sino Biopharm (1177) and SMIC (981) fell nearly 3%. BeiGene (6160), Innovent Biologics (1801), Budweiser APAC (1876), and Laopu Gold (6181) declined over 1%.

The Hang Seng Tech Index rose 0.6%, closing at 4,698, with 23 gainers and 7 decliners. Large tech stocks mostly rose. NetEase (9999) fell over 1%, while Alibaba (9988), Tencent (700), and Xiaomi (1810) rose over 1%. Baidu (9888) gained over 2%. Meituan (3690) rose over 4%, the best performer. Leapmotor (9863) rose over 3%. Li Auto (2015), XPeng (9868), Lenovo (992), BYD Electronic (285), Sunny Optical (2382), and Tongcheng Travel (780) rose over 2%. Ctrip (9961), Midea Group (300), and Haier Smart Home (6690) rose over 1%. Hua Hong Semiconductor (1347) plunged over 7%, the worst performer. Horizon Robotics (9660) and SMIC (981) fell nearly 4% and 3% respectively.

Sector-wise, chip stocks declined. Hua Hong Semiconductor (1347) fell over 7%, SMIC (981) nearly 3%. Lithium, mining, Macau gaming, gas, and building materials outperformed. Ganfeng Lithium (1772) and Tianqi Lithium (9696) rose nearly 10% and 7%. China Aluminum (2600) rose over 6%, Minmetals Resources (1208) and Jiangxi Copper (358) over 3%. Sands China (1928) rose 5%, Wynn Macau (1128) over 3%. ENN Energy (2688) rose over 3%, China Resources Gas (1193) and China Gas (384) over 2%. Conch Cement (914) and China Resources Building Materials (1313) rose over 3% and 2%.

The Shanghai Composite Index opened flat on Thursday, fluctuating narrowly, down 0.4% intraday, then up 0.3% in the afternoon, closing at 3,876.78, up 0.3%. The Shenzhen Component Index rose 0.4%. The STAR 50 Index fell 3.8%. Total turnover in Shanghai and Shenzhen markets was about RMB 2.2 trillion, the lowest in three months, down RMB 460 billion from the previous day. June's daily average was RMB 3.11 trillion.

3) Macro/Industry News

The European Central Bank announced after its meeting that it would keep interest rates unchanged, in line with market expectations. (Hong Kong Economic Journal)

4) Stock-Specific News

Geely Automobile (175) announced that its wholly-owned subsidiary Geely SPV acquired a 34% stake in Ford España, S.L., which owns a factory in Valencia, Spain, from the Ford Group for a total consideration of €221 million. (Hong Kong Economic Journal)

Chow Tai Fook (1929) reported a 15.1% year-on-year increase in retail value for the first quarter ended June. The Hong Kong, Macau, and other markets rose 44.8%, while mainland China rose 10.7%. Same-store sales in Hong Kong and Macau grew 41.7%, and in mainland China rose 19.6%. (Hong Kong Economic Journal)

Sands China (1928) reported that under US GAAP, its total net revenue for Q2 declined 0.8% year-on-year to $1.78 billion, net income plunged 50% to $107 million, and adjusted property EBITDA fell 24.0% to $430 million. (Hong Kong Economic Journal)

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