Risk assets started the new week on the front foot, as the dollar backpedaled from a nine-month high and Hong Kong shares climbed out of bear market territory, helped along by the beleaguered tech sector.
The Hang Seng Tech Index rose 2% (figure below) on what we’ll call dip-buying. It was oversold, technically speaking, but anyone who thought fundamentals or technicals mattered was disabused of such notions this year, as Xi’s never-ending regulatory blitz rendered any and all ostensible “buy” signals irrelevant.
The tech gauge has been oversold (on a 14-day RSI) five times since March, for example.
If you think the time to buy is when pessimism metamorphoses into fatalism and despondency, I suppose Chinese tech might be worth a look. “I don’t think it will end very soon,” one Alex Au lamented, in remarks to Bloomberg last week. “Investors need to reassess the rationale and the risk of investing in China.”
With apologies, that risk (of investing in China) was never terribly difficult to “assess.” Or at least not for anyone who views markets through a cross-disciplinary lens. Like (too) many other investors, Alex didn’t sell his Chinese tech holdings until it was far too late. The linked article says he exited last month, and is now short some names.
Far be it from me to call any bottoms, but Tencent is now trading at a P/B below five (figure below).
Some $1.5 trillion in market value has disappeared from Hong Kong tech over the last six months.
Of course, it’s not just the regulatory crackdown. There are concerns about China’s economy. For Jefferies’ Sean Darby, a deceleration in activity in the back half of the year is poised to negatively impact global growth via manufacturing gauges and corporate earnings. In the fourth quarter, global activity indicators could catch down to China, Darby suggested.
Speaking of global indicators, PMIs in Europe held up in flash reads for August (figure below). The bloc-wide composite gauge printed 59.5, essentially inline with estimates. It marked the sixth consecutive month of expansion.
Traders have cut bets on ECB rate hikes since May. Markets are now looking for a 10bps hike three years from now, which Bloomberg noted is “just a third of what was expected” a few months ago. Not only that, the same linked article suggested markets are actually far too aggressive, considering “swaps show inflation will be running below 1.7% in 2024.”
A quick look at the flash PMIs for Germany and France showed the services sector is now more resilient than manufacturing. “Although the spread of the Delta variant caused widespread problems across the region, curbing demand and causing further supply issues, firms benefited from virus containment measures easing to the lowest since the pandemic began,” IHS Markit’s Chris Williamson said Monday.
He went on to describe a familiar conjuncture defined by robust demand set against seemingly intractable supply chain problems. “Supply chain delays continue to wreak havoc, leaving companies frequently unable to meet demand and pushing firms’ costs higher,” he said, adding that “these costs, combined with surging demand, led to another near-record increase in average selling prices for goods and services, though there are some welcome signs that these inflationary pressures may have peaked for now.” Job creation was the strongest in two decades for the second month running.
“The eurozone economy is firing on all cylinders again as reopening has had the expected positive effect on growth,” ING remarked. “Concerns about the impact of the Delta variant and input shortages remain but have not derailed the rebound thus far.”
Oh, and China is back to “COVID zero,” or at least if you believe the official numbers. It took Xi a month since the latest outbreak, but there are now no local cases, apparently.
If any US politicians are interested in learning how to go about achieving such a Herculean feat, Bloomberg helpfully noted that Chinese authorities “took testing to an unprecedented level during this go-round” with one city testing its entire population not once, not twice, but 12 times.
