Oct Industrial Profits, Art of the Deal
Hang Seng had a volatile day ending off -0.17% on weak volumes and poor breadth with 18 advancers and 28 decliners. President Trump’s comments on escalating tariffs weighed on sentiment despite a similar tactic of harsh rhetoric this past summer prior to the Juncker/EU trade deal. Clearly the Art of the Deal didn’t sell many copies in HK. The consensus street view is a hold/ceasefire/de-escalation though I am more optimistic/constructive that the countries do a deal on areas of strength. Tencent had a strong day gaining +1.95% worth 49 index points though the index lost -44. Within the MSCI ChinaAll Shares’ HK companies, Tencent fueled the Communications Sector to a 1.11% gain with Tech +1.56%. Consumer Staples lost -4.07% as beverage and noodle maker Tingyi (322 HK) reported a Q3 revenue decline of -4% YoY as investors punished the stock -17.74%. Energy stocks followed commodity prices lower -1.07%. Southbound Connect volumes were lackluster with Tencent seeing slight selling pressure. Worth note that Tingyi saw mainland buyers.
Shanghai & Shenzhen diverged with the former -0.04% and the latter +0.43% on very light volumes as the day’s rally faded into the close. Breadth was positive on both exchanges as the Communication Services was the only sector in the green gaining +0.80%. Small caps saw net inflows while mega, large and mid caps experienced selling as chatter that the Shanghai’s new technology board will benefit tech companies which are mainly small cap companies. Mega/large caps experienced short term profit taking. Tingyi’s results weighed on the food and beverage sub-sector. Autos and EV/lithium names were up on chatter of new supportive policies. Solar names popped on positive results from US listed Jinko Solar (JKS US) positive results and outlook as the stock rebounded 15.51% yesterday. Northbound Connect volumes were very light with buyers slightly outpacing sellers.
October Industrial Profits grew 3.6% versus 4.1% in September year over year to RMB 548 billion. YTD through October profits have grown 13.6% year over year as mining, metal smelting, oil processing, chemical, and gas contributed the most to profits. The debt to asset ratio of industrial companies dropped 50bps in October to 56.7%.
Tesla sold just 211 cars/-70% in October as China’s tit for tat tariffs priced their EVs. Tesla will cut the price by 26% to offset China’s import tariff. A great example of how consumers pay for tariffs. Not sure if doing the same on iPhones is a great idea (AAPL #2 stock in S&P 500).
Tencent is partnering with Japan’s Line (owned by South Korea’s Naver) to make WePay available for mobile payments.
AXA is paying $662mm for full ownership of the property and casualty insurance joint venture following yesterday’s announcement Allianz will be the first foreign insurance company. Notice the nationality of these companies?
Jack Ma mentioned in the mainland media as being a member of the party though that has long been suspected.
This time of year 2019 forecasts begin. It was reported that Morgan Stanley’s Jonathan Garner, who is based in HK, believes HK stocks will close their valuation gap versus EM by rising 8% in 2019. The SCMP also reported that Goldman Sachs believes MSCI HK will rise 5.7% in 2019. Interesting that MSCI Hong Kong is considered a developed market and thus not part of emerging markets.
Official PMIs will be released Friday morning.
- CNY 6.94
- Yield on 1 Day Chinese Gov’t Bond 1.86%
- Yield on 10 Year Chinese Gov’t Bond 3.41%
- Yield on 10 Year China Development Bank Bond 3.97%
Commodities were weaker on both exchanges last night