Daily Posts

Caixin PMI, Why China Has Been Quiet Post Buenos Aires, IP Enforcement Actins Announced, Shenzen Private Company Support

Hope all is well on a cold morning!

Today and Thursday we will host a webinar with Beijing based CICC equity strategist Kevin Liu. Kevin is a tremendous resource with keen insights on China’s economy and capital markets. If you haven’t registered please let me or your contact know.

Caixin China PMI Composite:
51.9 versus Oct’s 50.5

Caixin China PMI Services:
53.8 versus estimate 50.7 and Oct’s 50.8

Takeaway: While manufacturing faces headwinds from a potential trade war, China’s service economy is holding up well. While export demand slackened it was offset by domestic demand. Future expectations and new exports orders are muted due to trade war concerns. While the domestic economy won’t be immune to a trade war, there are efforts to offset its effect and stimulate the economy.

Hang Seng lost -1.62% as the US’ malaise weighed on Asia broadly. The tariff man tweet didn’t help though inverted yield curve is an increasing concern. Turnover was light though there were only 6 advancers and 43 decliners. Insurance giant AIA dropped -3.28% worth 78 of the indice’s 440 point drop with HSBC -2.64% and Tencent -2.25%. Apple suppliers AAC and Sunny Optical dropped -3.7% and -7.27% as potentially sluggish iPhone sales weighs on these names. Within the MSCI China All Shares’ HK stocks, tech was off -3.5% followed by energy -2.63% and discretionary -2.4%. Southbound Connect volumes were light with Tencent seeing buying 2 to 1.

Shanghai & Shenzhen gapped lower but climbed off the lows to end -0.61% and -0.48% on lower volumes and breadth 2 to 1 decliners versus advancers. Mainland investors were less skeptical of a trade war escalation as staples gained +0.75%, healthcare +0.66% and real estate +0.22% within the MSCI China All Shares mainland stocks. Financials and tech were off -1.11% and -1.02%. Small caps experienced strong buying while mega caps saw net buying though large and mid caps were sold. Northbound Connect volumes were moderate with buyers outpacing sellers with MSCI Inclusion stocks Kweichow Moutai and Ping An net bought.

President Xi has yet to return to China post G-20 which explains why there has been less communication on what took place at the famous dinner. Last night a spokesperson from the Ministry of Commerce did release a statement in President Xi’s absence reaffirming the dinner as a success. There was chatter that LNG and soybean purchases will be implemented soon. This would be an easy win to keep momentum going.

Morgan Stanley’s Jonathan Garner was on Bloomberg TV last night recommending an overweight to China and EM. He predicts a 12% rally in the Chinese A shares and a 7.4% gain in Chinese HK and US stocks.

Intellectual Property violations will be enforced as 38 government agencies signed a release of punishments including violators losing access to credit and gov’t contracts. The timing is by no means a coincidence as a major step in addressing a major US concern.

The Shenzhen local government announced a RMB 400 billion stimulus geared to private companies. Included is a RMB 100B tax relief. There were multiple measures to ease the access to credit for private companies.

As mentioned on Monday, the China Financial Futures Exchange (CFFEX) lowered the margin requirement for equity futures from 15% to 10% and cut the exchange fee from 6.9bps to 4.6bps. Investors took noticed as open interest jumped 29% on Monday according a broker.

There is chatter than Shanghai London Stock Connect will be delayed a month according to Reuters. Mainland media mentioned it was due to Brexit which will lead to a post Christmas launch.

CNY 6.85; off the lows post-G-20 but this extreme nature of the move could be the end for CNY shorts.

Wow! There is an AMAZING rally in Chinese bonds taking place. Surprisingly foreign holdings of Chinese bonds dipped last month despite the rally. Flows into US listed China bonds ETFs has been non-existent.

  • Yield on 1 Day Chinese Gov’t Bond 1.56%
  • Yield on 10 Year Chinese Gov’t Bond 3.29%
  • Yield on 10 Year China Development Bank Bond 3.84%

Commodities were largely firmer though copper off on the Shanghai & Dalian future exchanges. Years ago I was told to track commodities in China as a tell on the broader economy.