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Caixin Manufacturing PMI, Chinese Financial Companies Allowed to Buyback For the 1st Time

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Last night was the warmest Halloween that I can remember. Based on the kids’ candy haul, local dentists should be happy.

October Caixin Manufacturing PMI    50.1 versus estimate 50 and Sept’s 50

Takeaway: Caixin polls 500 small and medium enterprises while the NBS PMI surveys big companies. Policy makers want to direct credit to smaller companies while deleveraging large companies. Private companies have a hard time accessing credit as banks prefer lending to State Owned Enterprises. Private companies can go bankrupt while SOEs have an implicit government guarantee. Today’s slight uptick was a surprise versus the NBS’ declining October PMIs though as you dig into the sub-components there is clearly weakening foreign demand. Sentiment was subdued due to the trade war. As the middle person in global trade, China acts like a tell in poker which makes today’s reading worrisome for the global economy.

Hang Seng gained +1.75% on strong volumes 11% higher day over day and highest volume day in three weeks with 40 advancers and 8 decliners. Tencent ripped +4.04% worth 93 of the indice’s 436 point gain with AIA’s rebound of +3.29% worth 74 index points. Tencent held their Global Partner Conference in Nanjing with 10,000 attendees focused on “Integrating the Consumer and Business Internet”. Within the MSCI China All Shares’ HK stocks, real estate was the leading sector +6.48% followed by tech’s +4.68% and materials +3.21%. Infrastructure stimulus is likely coming which explains the move in RE and materials. Southbound Connect volume was strong in mixed trading as Tencent saw buyers slightly outpace sellers. HSBC saw very strong buying again.

Shanghai & Shenzhen eased off intra-day highs in the afternoon session to end +0.13% and +0.93% in moderate breath and strong volumes +21% day over day. Profit taking may have been a factor in the afternoon fade. On big volume days I like to look at the most heavily traded stocks. Tech heavy weight BOE Technology Group traded 710mm shares today versus the US’ most heavily traded stock yesterday was GE’s 201mm. Technology was the strongest sector within the MSCI China All Shares’ mainland stocks gaining +3.05% followed by staples +2.45%. President Xi mentioned China should keep developing artificial intelligence which led AI stocks to promptly rip higher. Staples was led higher by the recently beaten up liquor/food & beverage sub-sector including MSCI heavyweight Kweichow Moutai. Mega caps and small caps saw inflows while large and mid caps saw outflows. Northbound Connect volumes were very high with 2 to 1 buying. Kweichow Moutai was the volume leader with 4 to 1 buyers to sellers. Ping An saw almost 8 to 1 buyers. Wow! Big day for foreign buyers.

Earlier this week I noted that the CSRC had relaxed buyback rules. I hadn’t realized that mainland listed financial companies haven’t been allowed to buyback stocks until this announcement. Amazing! I didn’t believe it but confirmed this. Looks for Chinese financial company A Shares buybacks. I’ll save you some time: you aren’t going to find any. Ping An announced they may buy 10% of their Hong Kong listing which would be $16 billion according to Bloomberg. 14% of Ping An’s HK float is currently short so a buyback of that magnitude would leave a mark. Ping An also announced they will spin off their healthcare technology unit in a HK IPO. Interesting that Ping An’s H shares is actually at a premium to the A Shares. Save some of that buyback for the A shares listing please!

Alibaba earnings tomorrow morning…
  • CNY 6.94; big reversal as dollar falls
  • Yield on 1 Day Chinese Gov’t Bond 1.88%
  • Yield on 10 Year Chinese Gov’t Bond 3.57%
  • Yield on 10 Year China Development Bank Bond 4.17%

Commodities were lower on both the Shanghai & Dalian