Good morning!

Gorgeous morning here in NYC which should bode well for tomorrow’s trick or treating with the kids. As a FYI I will be headed Hong Kong next week though I’ll do my best on getting China Overnight out. There will be no CO on Monday nor Friday next week due to flight times.

Key Developments that lifted mainland Chinese Equities:

• CSRC released a statement endorsing stock repurchases. The SEC of China will “create conditions to encourage listed companies to conduct stock repurchases”. The CSRC also had encouraging comments on supporting M&A and market conditions.
• President Trump was interviewed last night on Fox News saying a “I think we’ll make a great deal with China” is coming. After yesterday afternoon’s tape bomb on increasing tariffs cratered US markets, a change of strategy isn’t a bad idea.

Hang Seng fell -0.91% in a roller coaster session on moderate volumes with 14 advancers and 34 decliners. An overlooked element was the Hang Seng future expiration yesterday. Tech and communications followed their US counterparts south as Tencent’s -3% accounted for 62 of the indice’s 2226 point fall. The Hang Seng will likely end the month with the worst monthly performance in a decade. Yes that would be the 2008 financial crisis. Within the MSCI China All Shares Indice’s HK listings, communications fell -2.58% followed by materials -1.95% and staples -1.67% as discretionary gained +1.06%. Southbound Connect volumes were moderate as sellers outpaced buyers. Tencent had 2 to 1 buyers which is an interesting development worth noting.

Shanghai and Shenzhen rebounded from early losses to gain +1.08% and +0.94% on strong breadth as volumes rebounded +21% day over day. Both the CSRC and President Trump comments lifted the market. Real estate was the leading sector gaining +2.37% with the MSCI China All Shares’ mainland stocks on chatter property developers could see policy support. Also strong were financials +2% on potentially new equity investment vehicles being approved. Healthcare had a good day +1.37%. Tech fell on news the US will ban Fujian Jinhua’s semiconducters (non public company) in the US -1.23%. Staples considers to suffer -2.03% from liquor names’ weakness following Kweichow Moutai’s weak earnings though I stand by the difficult quarterly comparison to last year. Mega caps and small caps saw strong inflows overnight while large and mid caps saw outflows. We are now tracking and will report trading by market capitalization. Northbound Connect volume was high with buyers outpacing sellers by narrow margin. Ping An saw strong buying on their stock repurchase plans while Kweichow saw 2 to 1 selling.

Bloomberg reported that prestigious Hillhouse Capital is looking to raise $4 billion to invest in Chinese equities for their hedge fund. The article insinuates that the asset raise is driven by compelling valuations. Hillhouse was in the news several weeks ago as it raised $10 billion for the largest Asia private equity fund. This follows the WSJ reporting several days ago that Howard Marks is looking at both Chinese fixed income and equities.

• Baidu, IQ and Yum China report after the close today; Alibaba reports Friday morning
  CNY 6.96; one local broker noted a mainland “official” media source noting that CNY will not breach 7
• Bond rally stalls as equities stabilize
• Yield on 1 Day Chinese Gov’t Bond 1.52%
• Yield on 10 Year Chinese Gov’t Bond 3.51%
• Yield on 10 Year China Development Bank Bond 4.17%
  
  

Commodities were lower on both Shanghai & Dalian