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Infrastructure Push Coming, More Tax Cuts Coming in 2019

Hope all is well! I have a full day of meetings so today’s note will concise.

Hang Seng gave up mid-day gains in afternoon trading to end the day at -0.38% as volume declined 6% day over day with 24 advancers and 22 decliners. AIA and HSBC’s declines of -1.54% and -1.28% weighed on the index as their declines were worth -34 and -31 index points. The Hang Seng fell -96 index points for the day. Energy giant CNOOC fell -3.82%/-28 index points as the Saudis raise production in a global energy rout. Within the MSCI China All Shares’ HK companies, materials fell -2.1% as ChinaResources Cement fell -7.52%. Tech was led lower by Meituan’s -5.74% decline and Apple supplier Sunny Optical’s -4.64% on news of a competitor’s acquisition that might threaten their market share. Utilities gained +0.32% while real estate rebounded +0.28%. Southbound Connect volumes were moderate with seller slightly outpacing gainers. Tencent was sold 2 to 1 though the stock eased only -0.72% despite news that new game approval won’t be forthcoming.

Shanghai & Shenzhen mirrored HK as morning gains eased in afternoon trading to end the day +0.33% and -0.24% as volumes declined 16% day over day. Advancers did outpace decliners on both exchanges. Within the MSCI China All Shares’ mainland holdings, staples declined again -2.1% on a proposed liquor tax though analysts were active in saying it is unlikely. Healthcare struggled             -1.45%. while financials rallied +1.79% as brokers continue to outperform. A mega cap mainland ETF saw another day of strong inflows which some attributed to the large cap outperformance. Northbound Connect volumes were strong as foreign investors were strong buyers especially in Ping An Insurance.

While infrastructure names did not have a strong day overnight, several brokers noted the strong possibility for a infrastructure push coming geared to rural development.

China cut its VAT tax in May of this earlier. Over the weekend deductions for personal tax income were announced that would save $16 billion. The goal is to support consumption and private enterprises. There is also talk for another tax cut in 2019.
  • CNY 6.94
  • Interesting yield rally across the curve today
  • Yield on 1 Day Chinese Gov’t Bond 1.74%
  • Yield on 10 Year Chinese Gov’t Bond 3.56%
  • Yield on 10 Year China Development Bank Bond 4.21%

Commodities were largely firmer on both the Shanghai & Dalian