Daily Posts

Auto & Home Appliance Rally, CNY Rally, Volumes Increase

Hope all is well!

Hang Seng popped +1.4% at the open and ended the day +2.27% following a strong trading day in the US, positive progress on US and China trade talks and National Development and Reform Commission deputy Ning Jizhe’s comments on boosting auto and home appliance purchases on Chinese TV Tuesday night. The latter point was mentioned in yesterday’s note though I need to remember the Australian saying “the tall poppy gets cut”. Regardless it feels good to get one right though I’ll keep the ego in check or else the markets’ will do so! Volumes increased 51% day over day in the highest volume day since early November. Breadth was very strong with 48 advancers and 1 declining stock. Tencent jumped +3.8% worth 103 of the index’s 586 point gain followed by AIA +2.97%/72 index points, CCB +2.34%/50 index points and ICBC +3.08%/39 index points. Within the MSCI China All Shares’ HK stocks gained +2.29%, autos led the consumer discretionary to a +3.65% gain on the positive auto sales notes, Tencent drove communications sector +3.07%, energy on crude’s continued rebound +2.62% etc etc. A very strong day across the board. Southbound Connect volumes were elevated with sellers outpacing buyers though Tencent experienced 2 to 1 buying.

Shanghai & Shenzhen gained +0.71% and +0.54% though both eased in the afternoon session having been up +1.9% and +1.81% as the market can’t shake short term profit taking. It is interesting to see investors lock in gains following last year’s poor performance. It will be interesting to see if mentality wears off if the market can continue to rally. Volumes increased 26% day over day for the strongest volume day since mid-November. Breadth was good but not great as advancers outpaced decliners. Within the MSCI China All Shares’ mainland stocks +1.39%, as autos led discretionary +3.32%, staples +2.02%, healthcare had another good day +1.8% as all sectors were in the green. Northbound Connect (ie foreign buyers) volumes were very strong with buyers vastly outpacing sellers. MSCI Inclusion stocks were heavily bought. Remember MSCI will announce the 2019 China A Inclusion by the end of February. They have proposed increasing the inclusion factor from 5% to 20%.

Xiaomi’s IPO lock up ends leading to a slump of 6.85%.

Weibo was off -5.6% following a Morgan Stanley downgrade to equal weight from overweight. Wish my 2019 weight loss goal resolution was that easy….

CNY 6.82!!!!! The WSJ article noted that the renminbi has been a “oasis” of stability. As a believer that interest rate differentials drive much of FX movements, the Fed’s recent pivot on 2019 interest rate hikes is the likely culprit. Did CNY foresee the pivot based on the strong move over the last month? If James Carville wanted to come back in his next life as the bond market, I am going to choose the FX market.

Front of the curve picks up though back and belly of the curve continues to rally.

  • Yield on 1 Day Chinese Gov’t Bond 1.56%
  • Yield on 10 Year Chinese Gov’t Bond 3.11%
  • Yield on 10 Year China Development Bank Bond 3.63%

 


Commodities were mostly higher on both the Dalian and Shanghai exchanges