Daily Posts

China Move Higher on Strong Volumes, NDRC bond push, QD short squeeze, VC tax cut

Hope all is well! We have a very interesting meeting with a very senior US China politician today that I will share in my notes tomorrow.

Key Development Overnight – Yes market sentiment is improving based on improved US China trade talks though a major factor was a release from the National Development and Reform Commission (NDRC). The NDRC announced it would support the issuance of bonds from companies with “sound credit records”. The market is reading this as a potential loosening on property development which has large downstream implications. Real estate, construction and appliance makers unsurprisingly led the mainland market higher. Another opportunity are property developers US $ denominated bonds issued in HK as foreign investors have sold off these bonds due to the curtailments that may be coming off. The coming CEWC could see more stimulus measures may be coming to support the economy.

Hang Seng gained +1.29% on volumes 14% higher than yesterday with 46 advancers and 3 decliners. Asian markets were broadly higher following the US’ move higher buoyed by improved trade talks and potential a less aggressive Fed. Volumes were still below the 52 week average. HSBC led the market higher +1.88% worth 48 of the index’s 337 point gain followed by AIA +1.02% 24 points and energy giant CNOOC +2.51% worth 17 index points. Within the MSCI China All Shares’ HK stocks, real estate was the leading sector +4.17% followed by materials +3.57%, discretionary +3.29% and industrials +2.72%. Healthcare clawed back recent pharma drug price plunge +2.35%. Tech was fairly lackluster +0.13% on lingering long run concerns of Huawei and US/China tech rift. Alibaba Pictures gained +5.94% on news Aibaba will raise their stake to over 50%. Tencent was quiet +0.62%. Southbound Connect volumes were higher though mainland investors were net sellers.

Shanghai & Shenzhen gained +1.23% and +1.11% on volumes 37% higher day over day and strong breadth. Volumes were below 52 week average but a nice up move confirmed by volume. The NDRC announcement led discretionary +2.72%, real estate +2.5%, industrials +2.34%, staples +2.02% and tech +1.68%. Healthcare experienced a similar gain +1.63%. The potential for real estate development rules to curtailed helped downstream stocks within construction and home appliances. Northbound Connect volumes were higher with buyers greatly exceeding sellers nearly 2 to 1. MSCI Inclusion stocks Kweichow and Ping An saw 5 to 2 and nearly 2 to 1 buyers.

China’s first order of US soybeans was 2 million tons which should arrive from Pacific Northwest ports in Q1. My estimate was a bit high though this is just the first order.

Tencent Music Entertainment Group (NYSE TME) gained +7.69% to close at $14 from the IPO price of $13.

Online/peer to peer lender Qudian (ticker QD) is gapping higher pre-market on strong profit guidance and a $300mm buy back announcement. QD is heavily shorted explaining pre-market trading at $6.28 versus yesterday’s close of $5.26.

Premier Li announced the venture capital firms will receive a tax break beginning Jan 1. The idea is to stimulate private company funding which has been an ongoing issue versus SOEs unfettered access to capital.

CNY 6.88

Bonds sold off slightly as large cap mainland stocks yield 2.5% versus the below yields.

  • Yield on 1 Day Chinese Gov’t Bond 1.72%
  • Yield on 10 Year Chinese Gov’t Bond 3.28%
  • Yield on 10 Year China Development Bank Bond 3.85%

Commodities were mixed though I would liked to have seen a strong move based on the NDRC news.