More FTZs, National Team Movement, Bridgewater Comments, WaPo Article
Hang Seng followed US markets lower declining -1.01% as volumes increased 16% day over day though below the average over the last year. There were only 15 advancers and 33 decliners. There was very little specific news as risk off spread from the US to Asia. Tencent declined -2.47%/-55 index points as new game approval doesn’t appear to be imminent which has been overhang for the company all year. AIA declined -2.22% worth 48 of the indice’s 255 decline. With the MSCI China All Shares’ HK stocks, tech declined -3.7% followed by communications -1.92%. Apple suppliers AAC and Sunny Optical were off -7.43% and -7.68% which brokers attributed to US tech weakness. Real estate gained +2.59% in an interesting divergence. Southbound Connect volumes were moderate in mixed trading. Tencent was the leading volume with buyers outpacing sellers 3 to 2.
Shanghai & Shenzhen gapped lower -2.4% and -2.89% at the open though rallied in the afternoon session to end the day +0.02% and -0.34%. Turnover declined 1.5% day over day and well below the 52 week average. Breadth was poor though real estate and index heavy financials gained 3.52% and 1.57% within the mainland stocks of the MSCI China All Shares. Real estate rose on chatter that home purchase restrictions could be loosened. Security brokerages were up again as well as stock collateral pledge relief has led to a rally. Food beverage and liquor stocks were weaker as staples declined -2.24% followed by tech’s -1.44%. Northbound Connect volumes were elevated as foreigners turned to sellers. Kweichow Moutai was the volume leader with sellers outpacing buyers 3 to 1.
TAL Education just reported Q2 earnings with Revenue and EPS beating estimates. Q3 revenue outlook was below estimates though the company announced a $100mm stock repurchase plan.
There was speculation that the National Team was active yesterday though one mainland noted two funds linked to the gov’t disclosed they had liquidated their stock and equity positions in Q3. The broker didn’t provide many details unfortunately. Big block trades in financials were the potential foot prints of the National Team. Policy makers continue to voice support for the market. In August 2015 we experienced a similar situation. Ultimately the purchases by the National Team in 2015 marked the low. We can’t predict if history will repeat itself though the August 2015 purchases turned out to be a great entry point. Coincidentally the Japanese government bought $626mm of ETFs yesterday according to a broker. While free market proponents will likely critize China’s intervention, there is little to news on what has been occurring in Japan as the government there buys up the entire stock market.
12 new pension asset allocation mutual funds were approved from nine fund families which could raise the equity purchase by pension plans.
President Xi voiced support for more free trade zones in a speech. FTZs are a gateway for foreign companies into China.
Bridgewater’s Co-CIO Bob Prince recommended investors “turn to the East” as the US and Europe are in the late in their economic cycle.
The Washington Post had an interesting article on China’s inability to get a deal done with the US. They have secured two separate agreements from Ross and Mnuchin only to see President Trump turn them down. It would great to know what those two deals entailed. Maybe the Trump Xi meeting at the G-20 Summit being after the mid-term election has more deal making potential. What if the deals were rejected solely because they came prior to the election?
- CNY 6.94
- Another BIG rally across the yield curve
- Yield on 1 Day Chinese Gov’t Bond 1.57%
- Yield on 10 Year Chinese Gov’t Bond 3.54%
- Yield on 10 Year China Development Bank Bond 4.18%
Commodities were mixed on both the Shanghai & Dalian though Dr. Copper -70bps