Daily Posts

Golden Week Stats, RRR Cuts Implemented

Hope all is well despite the rain here. Apologies for the late delivery as I’ve been under the weather which likely was exacerbated by cheering the kids on during a weekend full of soccer.

Hang Seng fell -1.38% on light volumes and poor breadth with only 10 advancers and 40 decliners. Total HK volumes fell by 1/3 compared to Friday and well below the YTD average potentially due to Wednesday’s market holiday in HK (Chung Yeung Festival/Double Ninth Festival as the 9th day of the 9th lunar month is a day to celebrate ancestors). HSBC’s decline of -1.97% was worth 50 of the indice’s 356 point loss though Tencent and CCB’s declined 45 index points each. An institutional broker noted an increase in HSBC’s short interest as a culprit and a FT report that said new online game approval is unlikely this year which weighed on Tencent. The article cited an unnamed executive at a gaming firm though the article is really an overview of the regulatory backdrop. This would be a refute Friday’s market chatter which lead to 8% rally in Tencent. Within the MSCI China All Shares’ HK names, Healthcare was the only sector in the green though Energy was barely negative on Saudi news. Real estate was off -4.45% on poor Golden Week sales which historically sees strong buying. Southbound Connect volumes were light in mixed trading though HSBC saw 10 to 1 buyers to sellers while Tencent saw mainland investors reverse to sellers. Tencent continues to buy back stock.

Shanghai & Shenzhen were off -1.49% and -1.18% as the market slipped in afternoon trading on very light volumes as a lack of catalysts weigh on market sentiment despite compelling valuations. The Consumer Discretionary, Real Estate and Materials declined more than 2%. Northbound Connect volumes were slightly above average as foreigners’ selling slightly outpaced buyers with several MSCI inclusion names seeing selling.

A research firm reported Golden Week, China’s week long vacation week, statistics. Remarkably there were 726mm individual trips booked. Retail sales, which includes food & beverage, increased 9% year over year to $202B.

The widely anticipated bank Reserve Requirement Rate (RRR) cut went into effect today. Total injection is RMB 750B net of RMB 450B maturing MLF. PBOC Governor Yi Gang spoke on Sunday saying that monetary policy will be stable and neutral (ie Goldilocks’ not to hot not to cold) as the country’s GDP target of 6.5% is attainable. There is concern that monetary easing would hurt the renminbi which off limits in light of US attention to the currency.

South China Morning Post had an article on individual investors giving up on the mainland stock market. China’s stock market does not have a large economic impact like here in the US. The depressed state of the market does appear to be garnering more attention from Chinese policy makers. What tools could be implemented to support the stock market? Increased equity allocations by insurance and pension plans is one. MSCI’s proposed increase in the 2019 inclusion would be a positive.

  • CNY 6.91
  • 10 Year Yield on Chinese Gov’t Bond 3.59%
  • Commodities were largely higher in Shanghai and Dalian