Daily Posts

Golden Week Edition: PMIs, Tencent Restructuring, Tencent Music IPO Filing

Greetings from London! I am attending the Inside ETFS Europe conference this week. It is smaller event than the US version though ETFs continue to expand globally.

September Manufacturing PMI                 50.8 versus estimate 51.2 and August’s 51.3
September Non-Manufacturing PMI        54.9 versus estimate 54 and August’s 54.2

Takeaway: The consensus view holds that the trade war is responsible for China’s manufacturing PMI decrease. Maybe, though China’s manufacturing continues to be a smaller segment of China’s economy due to the continued rise of domestic consumption. Additionally China’s anti-pollution and monetary tightening have deliberately slowed the economy. We wrote years ago a piece titled “A Tale of Two China’s” which is still true today as the Non-Manufacturing Sector outperformed (again). As an investor we want to position ourselves toward the areas of strength. Investors should note that input and outputs prices for both PMIs rose. For years China has exported deflation. A reversal in that trend could have wide consequences for investors.

The Hang Seng started the new quarter with a thud falling -2.38% on light/below average volumes and poor breadth as only 2 stocks gained and 48 declined as several factors weighed on the market. The weekend’s weaker Manufacturing PMI was a factor and the belief that a NAFTA resolution will lead to a hardline in China trade talks. Financials were the biggest contributors to the indice’s fall as AIA fell -3.36%/87 index points, CCB -3.22%/73 index points, and HSBC -2.1%/56 index points. Within the MSCI China All Shares HK companies, utilities were the worst performing sector falling -5.27% on news that China may cap the price utilities can charge for new home hook ups. Previous high flyer ENN Energy fell -14.34% on the cap news which still seems unclear to me. Consumer discretionary stocks had poor day -3.89% led by auto makers and Macau.

Shanghai & Shenzhen are closed this entire week.

Tencent is responding to tighter online gaming regulation through a “strategic organizational upgrade” by restructuring seven business units into six through the elimination of three units and creation of two new units. Ahead of next month’s 20 year anniversary, the restructuring will prepare the company for the next twenty years.

  • Tencent Music is scheduled to file their NYSE IPO paperwork today.
  • CNY 6.86 (Friday’s close)
  • 10 Year Chinese Gov’t Bond Yield 3.63% (Friday’s close) ; Yield came in from 3.7% in the days prior to Golden Week; overnight rate dropped below 2% as well
  • Commodities were lower on both the Shanghai & Dalian exchanges (Friday’s close)