Greetings from Hong Kong! Apologies as it has been a busy week! I’ll put together some talking points from my meetings here. I am headed home tomorrow so no CO.

FX Reserves:
$3.053 trillion versus estimate $3.058 trillion and Oct’s $3.087 trillion

Takeaway: We can’t say for certain that FX drop was due to intervention in CNY though it is the third month of declines. The PBOC sold short term bills in HK which pulls money out of offshore renminbi which is a sign that a weakening currency is a worry. In a meeting here in HK, one investment professional felt that CNY breaching 7 was a line in the sand that policy makers won’t allow to occur. CNY above 7 was described as an experiment that won’t be allowed to occur. At another meeting, it was expressed that a breach of 7 was inevitable. I suppose a market needs bulls and bears. I still believe that interest rates are a major factor. Yields in China have been low due to risk off sentiment while the Fed is tightening. If one of those changes I believe the currency will change as well.

Trade Data in CNY:
Trade Balance: 233B versus estimate 237B and Sept’s 213B
Exports YoY: 20.1.% versus estimate 14.2% and Sept’s 17%
Imports YoY: 26.3% versus estimate 17.7% and Sept’s 17.4%

Trade Data in US $:
Trade Balance: $34B versus estimate $35B and Sept’s $31B
Exports YoY: 15.6% versus estimate 11.7% and Sept’s 14.5%
Imports YoY: 21.4% versus estimate 14.5% and Sept’s 14.3%

Takeaway:
The pessimism of economists isn’t hard to see. They universally took September’s exports numbers and reduced them which turned out to be wrong. Already the chatter is the strength of imports and exports is tariff front running and/or tariffs haven’t been priced in. I suppose there is likely an element of that. Conversely one could say that the increases were driven by the effect of higher priced tariffed goods. The numbers look good which is a great sign that the global economy is well.

Hang Seng opened higher but faded into the close ending +0.31% on moderate volume and breadth with 32 advancers and 17 decliners. China Mobile was the leading gainer +2.75% worth 38 of the indice’s 80 point gain. There were two earnings misses worth noting. Wynn Macau reported good earnings but a weak Q4 estimate which hammered the stock -9.74% which spread to Sands China -3.41% and MGM China -4.71%. Apple supplier AAC missed earnings leading to a not so subtle -7% which hit fellow supplier Sunny Optical -2.33%. Within the MSCI China All Shares’ HK companies, defensive utilities and energy were 2.37% and 1.49% while staples and tech declined -1.53% and -1.5%. Southbound Connect volumes were moderate in mixed trading with Tencent seeing buyers slightly outpace sellers while Sunny Optical was exited in size. Financials saw heavy buying activity.

Shanghai & Shenzhen weren’t able to hold their early gains as they lost -0.22% and -0.48% in light volumes. Within the MSCI China All Shares’ mainland stocks, tech and communications lost -1.58% and -1.29% while defensives like energy and staples gained 0.38% and 0.19%. Mid caps and small caps underperformed large caps by a wide margin. This is despite President Xi’s recent comments endorsing the private sector. Worth noting tech underperformed despite the World Internet Conference being held in China this week. Northbound Connect volumes were moderate with buyers outpacing sellers 2 to 1.

Ctrip reported Q3 earnings. By the numbers:

• Revenue +15% YoY to RMB 9.4B/$1.4B
• Adjusted EPS $0.42 versus estimate $0.26
• Q4 revenue forecast +15 to 20%

Numbers look good right? Stock is down pre-market as several analysts have cut their price targets. I will have to get the conference call transcript as something clearly went awry.

• CNY 6.93
• Bond price rally this week as yields down on equity weakness
• Yield on 1 Day Chinese Gov’t Bond 1.87%
• Yield on 10 Year Chinese Gov’t Bond 3.48%
• Yield on 10 Year China Development Bank Bond 4.13%

Commodities were mixed/lower on both exchanges