Market update for China: the main part of the mainland is experiencing huge demand, Hong Kong's economy is growing, weekly overview.

A week from KraneShares in review

This week, the Chinese indices Hang Seng and Shanghai Composite entered positive territory for the first time in a year, while almost all Asian stock indices rose this week, except for Indonesia and Australia. The Chinese internet sector index abroad is outperforming the Nasdaq Composite by nearly 20% since February. UBS increased its weighting of Chinese stocks this week, while Goldman Sachs stated that mainland stocks deserve a "re-rating" in a research note after the Loan Prime Rate, which determines mortgage interest rates, remained unchanged on Monday as expected.

Asian stocks were mixed last night, with Hong Kong, Mainland China, Taiwan, and South Korea showing better performance, rising by more than +1%. Meanwhile, Australia, Indonesia, and India struggled and incurred losses. Today's rally in China was triggered by several stimuli, including the release by the Ministry of Commerce of the "Implementation Rules for Subsidies on Traded Vehicles," which provides a subsidy of 10,000 yuan for trading in an old car for an electric vehicle (EV). This led to a +4.42% increase in BYD, while Li Auto gained +5.78%, Xpeng rose by +8.80%, and NIO increased by +7.24%. The outlook was also improved by the Beijing Auto Show, which showcased many new models, including NIO's ET7 sedan, Huawei-BAIC's new S9, and BYD's aZ9 GT and Ocean-M hatchback. NIO and Lotus are partnering in battery swap technology.

The most successful sector in mainland China has been the real estate sector, where the index rose by +5.42%, and in Hong Kong, where the increase was +7.09%. This was noted in a Bloomberg article, which mentioned that the head of real estate for UBS in China and Hong Kong, John Lam, has become optimistic about the sector after its decline in 2021, especially following the Evergrande default. There were also reports from the mainland about the successful conduct of land auctions in Chengdu, Nanning, and Wuxi, indicating a recovery in the sector.

I prefer stocks in the real sector, but no one is interested, despite the very high returns.

The financial sector as a whole underperformed, but brokers were upbeat after the Treasury Department announced that the sector could be strengthened through mergers.

The most actively traded stocks in Hong Kong were Tencent, Meituan, Alibaba, AIA, and Sense Time, the latter gaining +43.37% after yesterday's news about its new Sense Nova 5 model. Growth stocks had a very strong session today, indicating increasing interest from foreign investors, despite the Southbound Stock Connect not being a factor today, with a total net purchase volume of only $149 million. Mainland China also had a strong day with a volume of 127% of the annual average and good coverage. The Shanghai Composite has now surpassed its 200-day moving average and reached its highest level since October 2023. Today's mass purchases through Northbound Stock Connect also indicate strong support from the National Team.

Today's purchases were the fifth largest in net volume through the Northbound Stock Connect since the program launched. Small-cap stocks performed well, indicating that local investors are starting to show interest in the recovery, as the STAR Board rose by +2.58% compared to Shanghai, which gained +1.17%.

This week showed a predominance of positive dynamics in the Chinese markets, despite some difficulties in other regions. We hope that the market will continue to improve and benefit investors.