Markets Diverge, IPOs
Hang Seng gained +1.73% on moderate/below average volumes though breadth was strong with 47 advancers and just 3 decliners. Tencent’s +2.34% gain was worth 57 of the indice’s 448 point gain. Within the MSCI China All Shares’ HK listings, Utilities gained +2.68% followed by the Communications Sector’s 2.2% gain. Utilities and other interest rate sensitive sectors such as real estate and financials, +1.43% and +1.16%, gained on traders’ speculation that the Fed will not hike as aggressively in 2019 as previously forecasted. Short term lending rates fell in HK overnight. Lower coal prices should help Utilities’ margins. The market is also anticipating a positive outcome of Trump and Xi’s meeting in Argentina. No one expects a full resolution but a de-escalation appears to be in the cards. Southbound Connect volumes were light with sellers outpacing buyers as mainland investors sold Tencent 4 to 1.
Shanghai & Shenzhen eased -0.14% and -0.32% on very low volumes and mixed breadth. Investors in mainland China were less optimistic following a WSJ article on the US’ effort to prevent allies from buying from telecom equipment provider Huwai. Not helping were reports that large shareholders were net sellers of stock in November. As one broker noted this is despite the market being at/near lows. There was also reports that regulators were examining companies with very high pay out ratios exceeding 50%. The regulator is worried companies are paying out very large amounts of revenue to reward management who own shares. Within the MSCI China All Shares’ mainland companies, Energy was unsurprisingly the weakest sector -0.88%. Interest rate sensitive sectors such as real estate, utilities and financials did manage small gains. Only small caps saw positive flows as mega, large and mid caps saw net selling on the day. Northbound Connect volumes were light though foreign buyers outpaced sellers by a small margin. MSCI Inclusion heavyweights Ping An and Kweichow Moutai saw strong buying.
Online fashion shopping website MOGU filed with the SEC to list on the NYSE next Wednesday. Market cap will be ~$1.5 billion. I’m diving into the Edgar filing and will report back. Tencent Music Entertainment Group is scheduled to list on 12/12 with a valuation between $22 to $25 billion.
Online travel firm Tongcheng Elong Holdings (780 HK) went public in HK raising $166mm (HK $1.3B). The stock rose 26.53% which valued the company at $3.2 billion.
Allianz was given permission to be the first foreign insurance company in mainland China.
Alibaba was in the news for Chief Technology Officer Jeff Zhang taking over the firm’s Alibaba Cloud unit. The cloud computing unit has seen rapid growth though its revenues are paled by the firm’s e-commerce efforts.
The National Bureau of Statistics has released a new indicator tracking China’s “new economy”. While totaling just 15.7% of GDP, the new economy grew 14.1% in 2017.
- CNY 6.94
- Yield on 1 Day Chinese Gov’t Bond 1.86%
- Yield on 10 Year Chinese Gov’t Bond 3.39%
- Yield on 10 Year China Development Bank Bond 3.98%
Commodities were very weak on both exchanges