Trump Xi Dinner, Caixin Manufacturing PMI, MSCI SAIR Recap, Onshore Futures Margin Cut, Passing of The Bicycling Ambassador
Trump Xi Dinner
Takeaway: President Trump’s comments on Air Force One leaving Argentina to reporters were “It’s an incredible deal.” The postponement of US tariffs increasing to 25% from 10% on $200B worth of goods during a 90 day discussion period is great news by itself. There are plans for a Chinese delegation to visit Washington in December. I like that there was a win out of the gate as President Xi agreed to designate fentanyl a controlled substance which would make it illegal to manufacture thus curtailing a factor in the opioid crisis. There are mutually beneficial wins easily attainable involving US farm products, LNG, airplanes and US financial companies access to China which hopefully pave the way for tackling harder issues. For instance Allianz was recently allowed to operate an insurance company while UBS was given the right to run a securities business in China. I am sure several NYC firms would like to be involved. I believe the 90 day reprieve could be extended if these softballs are taken up. An extension would allow tougher issues such as IP and tech transfer. Time will tell though I’m optimistic!
Hang Seng jumped +2.55% on strong volumes above the 52 week average with 46 advancers and 4 decliners. The Hang Seng powered through its 100 day moving average as investors cheered the Trump Xi outcome. Tencent gained +4.1% worth 110 of the indice’s 675 index points. Macua casino/gaming stocks had a strong day as November’s revenue release beat estimates. Within the MSCI China All Shares Index, tech was up 4.21% as tariff/trade and Apple related stocks did very well as ZTE +8.92%, Sunny Optical +7.74% and AAC +4.49%. Energy names responded to production cuts jumping 3.11%. Southbound Connect volumes surged surged though sellers dominated. Why? Potentially mainland investors believe the mainland market will react stronger than HK.
Shanghai & Shenzhen gained +2.57% and +3.27% on very strong volumes exceeding the 52 week average and very strong breadth. 3,576 stocks advanced with only 45 stocks declining. Staples gained +5.62% with food & beverage names leading as technology gained +5.51%. It was a very strong, broad rally. Northbound Connect volumes were MASSIVE as buyers outpaced sellers 3 to 1. MSCI Inclusion stocks Kweichow Moutai and Ping An experienced outsized buying.
November Caixin China PMI Manufacturing:
50.2 versus estimate 50.1 and Oct’s 50.1
Takeaway: A surprisingly strong read in light of the official PMI’s decline. Output declined slightly while new orders rose to the highest level since July 2018. It will be interesting to see if the PMIs pick up over the next several months based on the trade agreement.
The China Financial Futures Exchange cut the margin requirement for onshore futures to 10%. A local broker called it a “strong hint to investors to get back in the market”. I would call it unsubtle.
On Friday I mentioned Hutchison China Meditech (ticker HCM) was added to MSCI indices requiring MSCI benchmarked ETFs and index funds to buy it at the close Friday. HMC traded 6mm shares on Friday versus 753k on Thursday (YTD ADV 167k). There was a trade of 4.2mm at the close. 2/3 of the day’s trading in one trade! If you need evidence of the power of indexing I submit exhibit A.
The passing of President Bush marks the end of a life well lived. There is little I can add to the extensive coverage of his life, service to our country and his strong family devotion. I did notice many Chinese media outlets marked the passing of President Bush. In doing some digging, I hadn’t realized that President Bush lived in Beijing for 14 months beginning in October 1974 as the director of the US Liaison Office. He was known in China as the Bicycling Ambassador due to his Beijing bike riding. In fact the Bush Christmas card in 1975 featured a photo of President Bush and Barbara Bush with their bikes in Beijing. I like to think President and Mrs. Bush have reunited for the next bike ride.
- CNY 6.8897; a mere 1% move which is a massive mov
- Yield on 1 Day Chinese Gov’t Bond 1.83%
- Yield on 10 Year Chinese Gov’t Bond 3.40%
- Yield on 10 Year China Development Bank Bond 3.90%
Softs were strong as metals were mixed on the Shanghai & Dalian exchanges.