Trade Talk Date Confirmed, RRR Cut, Premier Li Speech, Caixin Services PMI INCREASES, Byron Wein’s China Call, Cook Blame Game
TGIF on a busy morning!
Caixin China PMI Services
- 53.9 versus estimate 53 and Nov’s 53.8
Takeaway: The press coverage on China’s Manufacturing PMI’s decline has become a common narrative. Where is the press coverage of the Service Sector’s increase? Crickets!
Markets were buoyed early by:
- Premier Li’s visit to the Bank of China, Industrial and Commercial Bank of China and China Construction Bank followed by a trip to the Banking and Insurance Regulatory Commission. Premier Li’s statement following the visits emboldened markets further as his statement voiced support for the economy and particularly private enterprises via tax cuts and cuts in the bank Reserve Requirement Ratio.
- US China trade talks will take place on January 7th at the vice-minister level.
- AFTER THE CLOSE, the PBOC announced two 50bps cuts in banks’ Reserve Requirement Ratio to occur on January 15th and 5th which will lower the ratio to 14% and then 13.5%. Premier Li alluded to the RRR cut pre-announcement which will free up funds to support private/small medium enterprises.
Hang Seng opened lower but rose steadily all day driven by the above positive catalysts. Volumes jumped higher 17% day over day though less than average over the last year. Breadth was excellent with 47 gainers and just three decliners led by insurance giant AIA’s +2.59%/60 of the 561 index point gains. Within the MSCI China All Shares’ HK stocks, healthcare (not a typo!) was up +5.04% on several notable buybacks from 3SBIO (1530 HK) 5mm shares and Luye Pharma (2186 HK) 1mm shares. The companies appear to believe that recent stock weakness driven by China’s new drug procurement process are overdone. Energy was up +3.3% while Real Estate gained +3.01% the latter on several companies reporting strong property sales. Southbound Connect volumes were moderately higher with sellers slightly outpacing buyers. Tencent saw 2 to 1 buyers.
Shanghai and Shenzhen followed similar trajectories for similar reasons gaining +2.05% and +2.66% on volumes 27% higher day over day and just below the 1 year average. Breadth was incredibly strong with only 162 decliners and 3,452 gainers. Within the MSCI China All Shares’ mainland stocks, financials was the leading sector up +3.15% with tech +2.89%, healthcare +2.87% and real estate +2.86%. Northbound Connect volumes were marginally higher in balanced trading.
Blackstone’s Byron Wein is well known for his annual Top 10 Surprises list of unexpected events that could come to fruition. This year’s list included: The profit outlook for emerging markets brightens and investor interest intensifies because the price earnings ratio is attractive compared to developed markets and historical levels. Continuous expansion of the middle class in the emerging markets provides the consumer buying thrust for earnings growth. China leads and the Shanghai composite rises 25%. The Brazil equity market also comes to life under the country’s new conservative leadership.
While the US investors appear to be buying the Cook/Apple trade war blame game hook line and sinker, in China the company is not getting a pass (nor I am for that matter!). Many commentators cite the company’s lack of innovation upgrade, expensive pricing, saturation of cell phone buying and quality improvement from local competitors as the culprit for the company’s woes. As last night’s Caixin Services highlight, the narrative that the Chinese consumer’s death have been greatly exaggerated. Yes car sales have rolled over but that is due to the tax break expiring. Property development curbs have a downstream effect on home appliance purchases. Regardless we should expect more Apple like China blame games especially in light of White House Council of Economic Advisor Kevin Hassett’s comment that “It’s not going to be just Apple”.
Audi reported 2018 China sales increased 11% to 660,888.
Mainland media source reporting that China’s birth rate could decline by 2mm to 15mm.
- Yield on 1 Day Chinese Gov’t Bond 1.44%
- Yield on 10 Year Chinese Gov’t Bond 3.17%
- Yield on 10 Year China Development Bank Bond 3.62%
Commodities were up on both exchanges.