China's sovereign wealth fund expands ETF purchases

Asian stocks were in the red as the 10-year U.S. Treasury bond topped 5% yesterday but is down this morning. Hong Kong and Thailand were closed due to holidays. The main factor behind the decline in mainland China was the release of strong economic data for September and last week's third quarter. This makes massive stimulus in the form of "policy bazooka" less likely. Chinese stock markets pierced my "lines in the sand" (Shanghai Composite at 3100 and Shenzhen Composite at 1900) like a red-hot knife. Shanghai closed today at 2939 and Shenzhen closed at 1776. The Shanghai Composite dividend yield is now 3.3% compared to the 10-year Chinese government bond yield of 2.7%. Trading volumes were poor with just 440 stocks rising compared to 4,519 declining stocks.

After the market closed, Central Huijin, the equity arm of China's sovereign wealth fund, bought additional shares of four bank stocks and acquired some ETF shares. Central Huijin increased its stake in Industrial and Commercial Bank of China (ICBC) by 27 million shares, Agriculture Bank of China by 37 million shares, Bank of China by 24 million shares and China Construction Bank by 18 million shares. The sovereign fund already has a large stake in the banks that were acquired last week, indicating their confidence that the stock market is oversold. Prior to the announcement of the purchase, there were rumors of a stabilization fund as many believe that China's economy has bottomed out despite the continued selling of stocks.

Today's market movement was not driven by foreign investors as Northbound Stock Connect was closed due to a Hong Kong holiday.

Western media noted that the offices of Foxconn, an iPhone supplier, in China's Guangdong and Jiangsu provinces were visited by tax authorities, while the Ministry of Natural Resources visited offices in Henan and Hubei provinces. The nature of these visits remains unknown, but the optics look terrible.

Hong Kong has been closed due to the Chung Yang holiday, also known as the double ninth day. This holiday provides an opportunity for people to "climb high mountains, clean the graves of their ancestors and eat purifying food to get rid of stagnation," according to The HK Hub.

Thailand was closed due to the Chulalongkorn holiday, which commemorates King Rama V, who brought many beneficial changes to the country, according to the Chulabhorn Graduate Institute.

Shanghai, Shenzhen and STAR Board declined 1.47% and 1.86%, respectively, with trading volumes down 1.52% from Friday, representing 73% of the yearly average. 440 stocks rose, while 4,519 stocks declined. Large stocks "outperformed" (i.e., fell less) small stocks. All sectors were in negative territory, with materials down 2.58%, technology down 2.31%, and industrials down 1.86%. The best performing subsectors were autos, insurance, and telecommunications. The worst losers were computer hardware, motorcycles and internet. Northbound Stock Connect was closed. The Asian dollar index declined slightly against the U.S. dollar and the Chinese yuan strengthened slightly. Treasury bonds were flat, while copper and steel declined.