Lower-than-expected September inflation, rebound in solar stocks


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Asian markets were mixed as mainland China was nearly flat and Hong Kong was closed for its national day. STAR’s board of directors made a small gain and volumes were low as Northbound Stock Connect was closed due to the market holiday in Hong Kong. Inflation data was released in mainland China overnight, along with new loans, which were weaker than expected, potentially giving the People’s Bank of China (PBOC) a reason to increase liquidity and carry out a further reduction in the RRR reserve requirement ratio to support the economy. Calm trading in continental markets overnight suggests that investors are awaiting clarification on the central bank’s position following the release of economic data.

China released the Consumer Price Index (CPI) and Producer Price Index (PPI) last night before the mainland market opened. On the positive side, inflation was lower than expected in September, although still high, reflecting the record inflation seen in the United States in September. The PPI, which measures the prices producers pay for inputs, rose + 10.7% year-on-year, which was slightly higher than expected. However, the sharp rise in the PPI was to be expected due to the recent energy crisis and the boom in oil and other commodities.

Solar energy stocks have increased over the past two days. The sector has recently undergone a correction due to the high prices of raw materials, especially silicon, which is used in photovoltaic panels, and the increasing demand for polluting energy sources as part of the recent energy crisis. CICC analysts postulate that the sector may soon experience favorable winds thanks to supportive policies and stabilization of commodity prices. The goals of building solar infrastructure in China remain ambitious despite the slowdown in construction due to bad weather and soaring raw material costs.

The director of the Chinese CDC has announced that if vaccination rates exceed 85% in the new year, the country could remove quarantine requirements for foreign visitors.

Some analysts expect weak third quarter results for Tencent as the physical impacts of gaming and advertising regulations crystallize. However, mainland investors bought its shares due to its favorable valuation. Presumably, unlike Western analysts, mainland investors expect positive results.

H-Share update

Hong Kong markets were closed overnight.

A-Share Update

Shanghai, Shenzhen and the STAR Board closed at -0.10%, -0.08% and + 0.19% respectively, on a volume lower than -3% than yesterday, as Northbound Stock Connect was closed due to the market holiday in Hong Kong, which meant that foreign investors could not trade mainland stocks.

Last night’s exchange rates, prices and yields

  • CNY / USD 6.44 vs. 6.43 yesterday
  • CNY / EUR 7.47 vs. 7.44 yesterday
  • Yield on 1-day government bonds 1.70% vs. 1.70% yesterday
  • 10-year government bond yield 2.96% vs. 2.96% yesterday
  • 10-year Development Bank of China bond yield 3.26% vs. 3.26% yesterday
  • Copper price + 2.40% today

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