Daily Posts

Dr. Kissinger Lunch, President Xi’s 40th Anniversary of Reform Speech Tomorrow, CEWC Begins Wednesday

Hope you had a great weekend! Unfortunately I have an early morning meeting tomorrow so no CO on Tuesday.

Hang Seng was range bound -0.03% in listless trading with 27 advancers and 22 decliners following Friday’s US market meltdown. HK volume was the lowest in a year as investors wait for a number of domestic events (Xi speech and CEWC) and foreign (Fed and Brexit). Chinese purchases of US corn are rumored to be next on the docket as trade tensions appear to thawing. Ping An declined -0.95% worth almost twelve index points as the Hang Seng declined nearly 7 index points. AIA was off -0.47%/-10.99 index points. Within the MSCI China All Shares’ HK stocks, the communications sector was the only sector up +0.13% while food and beverage names pulled down discretionary -1.71% and staples -0.95%. Southbound Connect volumes were light thought worth noting Tencent saw outsized buying (4 to 1) versus sellers. 

Shanghai & Shenzhen diverged +0.16% and -0.31% in volumes half of the 52 week average and mixed breadth. The mainland market did experience sector divergence as materials, energy and real estate gained +0.51%, +0.4% and +0.37% gained on weak property data as investors appear to be positioning themselves for development curbs to be lifted. We also had the NDRC approve a small number of infrastructure projects. Healthcare took another leg down -1.37% in an outsized move relative to other sectors as bulk pharma buying prices weigh on the sector. One broker was more optimistic on the sector in a note based on the extent of the down draft. Foreign investors were in a festive mood as they were net buyers in moderate Northbound Connect volumes.

I had the pleasure of meeting and hearing Dr. Kissinger speak late last week in NYC. I don’t want to put words in his mouth but he was optimistic that current trade talks would be successful. He spoke about how far China has come since his first visit as the US did more trade with Honduras than China. 

President Xi will deliver an important speech marking the fortieth anniversary of China opening up. The speech is expected to review the reforms that have taken place over the last four decades. The speech provides an opportunity for further reforms or an indication of them to be announced. On Wednesday the Central Economic Work Conference begins. The CEWC determines the goals and agenda for the next year though the outcomes are not released until Bloomberg noted that China’s bond market has outperformed global peers within the Global Aggregate. Chinese bonds will be added to the index in April 2019 though foreign investors have invested $66 billion year to date. Interestingly the number of Chinese bond ETFs here in the US will decrease from 4 to 3 as Invesco announced the February 2019 closure of their HK listed CNY denominated dim sum ETF.

The Canada China tiff has weighed on Canadian Goose’s stock which has fallen over 20% since the Huawei’s CFO arrest. The expensive coat company has delayed opening their flagship store in Beijing over anger toward Canada for facilitating the arrest.

Boeing opened a facility in Zhoushan to finish and customize 737s bought by Chinese airlines that are made and flown in from the company’s Washington factory and headquarters. The company recently delivered its first 737 MAX to Air China. China accounted for nearly $12 billion/12.8% of Boeing’s revenues in 2017 which is larger than Europe.

Ping An will issue debt to buy back their HK shares.
  • CNY 6.89

Back end of the yield curve backs up slightly. 

  • Yield on 1 Day Chinese Gov’t Bond 1.75%
  • Yield on 10 Year Chinese Gov’t Bond 3.36%
  • Yield on 10 Year China Development Bank Bond 3.92%

Commodities were mixed on both exchanges.