Daily Posts

Markets Rally, Too Big To Fail, SOE Profits

Hope all is well!

Hang Seng cheered news of  Trump and Xi having dinner this coming Saturday at the G-20 gaining +1.33% on higher volume day over day though still below the 52 week average. Breadth was very strong wit h45 advancers and just 3 decliners. Tencent (again) had a strong day gaining +3.62% worth 94 of the indice’s 350 point gain. Official Chinese media had positive articles on China’s willingness to do open up further.  Tencent’s gain led the Communications Sector +2.99% within the HK names of the MSCI China All Shares Index. Real estate and tech gained +2.57% and +2.06% in the broad rally though utilities dipped -0.19% as the only sector in the red. Macua gaming stocks have been gaining as mainland tourists are returning to the tables partially driven by renminbi weakness which makes overseas travel more expensive. Southbound Connect volumes were light with sellers outpacing buyers  including with Tencent.

Shanghai & Shenzhen gained +1.05% and +1.4% on higher day over day volume and strong breadth as mainland investors cheered the dinner news. Within the MSCI China All Shares’ mainland stocks, Communications gained +3.06% followed by +2.06%, real estate +1.74%, staples +1.64% and discretionary +1.27%. Mega caps and small caps experienced buying activity while large and mid caps experienced selling pressure. Food & beverage, securities brokers and electric vehicle sub-sectors led the way higher. Northbound Connect volumes were moderate though buyers outpaced sellers with MSCI Inclusion stocks experiencing outsized buying.

The Ministry of Finance reported that SOE profits increased 17.3% to RMB 2.8 trillion ($400B) YTD through the end of October. This was a slight decline from YTD through Sept’s 19.1% rise. Debt to asset ratio fell to 64.8% from 65.3% a year ago. Debt to asset ratio peaked two years ago 200bps higher. Deleveraging will be a slow process but it is occurring.

The PBOC is following the US in designating certain financial firms “systemically important” ie too big to fail. In focus will be banks and insurance companies though the Basel Committee for Banking Supervision and Fiancicial Stability Board (FSB) has previously designeated four banks (ICBC, CCB, BofC and AgBank) and Ping An Insurance as globally systemically important. Along with big banks and insurance companies’, mobile payment providers such as Ant Financial and WePay are apt to be included.

Tesla responded to media reports about a dramatic decrease in sales as “wildly inaccurate”. True or not, the alleged report highlights the effect of tariffs and how it ultimately hurts consumers as Chinese buyers are deprived the chance to buy a great car. One question that arose was the overall decline in auto sales in 2018 as evidence of a China consumer slowdown. 2018 auto sales are suffering from a very difficult year over year comparison. In 2016 China implemented a tax rebate that ran through year end 2017. The tax rebate led to car buying front running in 2016 and 2017 leading to the dismal 2018 sales.

Eve Energy, a Chinese lithium battery maker, is partnering with Israeli fast charge battery maker StoreDot.

President Xi stopped in Spain en route to Argentina in the first leader to leader in 13 years.

  • CNY 6.95
  • Bonds rallied overnight
  • Yield on 1 Day Chinese Gov’t Bond 1.84%
  • Yield on 10 Year Chinese Gov’t Bond 3.40%
  • Yield on 10 Year China Development Bank Bond 3.96%

 

Commodities rebounded on both the Dalian & Shanghai exchanges.