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Xiaomi Phones Home: Help!, Healthcare Rebound, New Home Prices Stable

Hope all is well!

Hang Seng opened down -0.47% though grinded higher all day to end +0.27% on moderate/light volume and mixed breadth with 29 advancers and 19 decliners. Fairly quiet on the news front as China Life gained +4.77% worth 19 index points followed by Ping An’s +0.92%/11 index points as the Hang Seng gained 71 index points. A local broker noted pension reform as a driver of insurance companies though I didn’t see/read that elsewhere. Within the MSCI China All Shares’ HK stocks, healthcare gained +3.12% on Citi and Morgan Stanley upgrades of the pharma sector which has come down following December’s 11 city pilot drug buying program which led to a dramatic fall in drug prices. Staples and real estate gained +1.64% and +1.2% while tech was off -1.46% driven by HK listed Xiaomi’s fall of -2.61%. Xiaomi is not part of the Hang Seng nor MSCI indices (exhale, sorry FTSE fans), the mobile phone maker had a 231mm share trade valued at $280mm placed at 5% discount to the market price. No tears for the seller as broker chatter was that a PE firm exited their position following a significant profit. There is chatter Xiaomi will cut its profit outlook as the stock hit a 52 week low of HK $9.70 versus its high of $21.55 in July. In a nut shell, no one is going to buy a smart phone globally until 5G which isn’t likely until 2020. Xiaomi’s fall spread to Apple suppliers AAC and Sunny Optical -3.45% and -2.18%. Southbound Connect volumes were elevated as mainland investors were buyers especially of volume leader Tencent nearly 2 to 1.

Shanghai & Shenzhen traded in a narrow range to end the day 0.0% and -0.12% in light volumes and poor breadth. Within the MSCI China All Shares’ mainland stocks, healthcare was the only stand out gaining +1.07% while most sectors traded up or down slightly. 5G and liquor/alcohol names saw short term profit taking after yesterday’s pop while coal miners gained on speculation recent mining accidents will led to mines being closed (ie less supply = higher prices). Northbound Connect volumes were moderate though buyers were in the driver’s seat. Connect volume leader Kweichow Moutai saw 10 to 3 buying in VERY elevated buying. Interesting!

Human Resources and Social Security Deputy Minister Qiu Xiaoping reported a record 8.34 million students will graduate from college this year.

China energy giant Sinopec will IPO its chain of gas stations in Hong Kong though date is TBD.

Tencent is protecting WeChat by blocking content from three upcoming competitors share on the messaging service. Private company Bytedance has garnered a lot of attention and users for its short video and news platforms. If you have a teenager you might know Bytedance’s TikTok.

Ever watch press coverage of the same event on a conservative and then a liberal TV news network? Amazing to see how different the same event elicits such different views. Reuters had the following headline today “China Central Bank’s record $83 billion injection heightens worries over ailing economy”. Sounds awful doesn’t it? Bloomberg headline on the same bank event: “China Injects Record Funds to Counter Tax, Holiday Cash Demand”. A FYI to Reuters: Chinese New Year’s is the first week of February. Otherwise known as the largest human migration, Chinese withdrawal huge sums of cash from banks to pay for their vacations. Chinese companies pay their annual bonuses in red envelopes filled with cash. Kudos to Bloomberg News!

UBS Asset Management’s positive note on Chinese companies issuing US $ bonds in HK yesterday led to a WSJ article  today. In a nut shell: high yields.

The National Bureau of Statistics reported that new home prices gained in 59 of 70 large cities in December while eight cities saw declines and three cities unchanged. The big four Tier One cities, Beijing, Shanghai, Shenzhen and Guangzhou, rose 1.3% in December.

CNY 6.76

Yield curve flattened after yesterday’s steepening. Regardless bonds rallied. I included bond prices below so one understands the magnitude of the bond rally over the last year. Japan’s 10 Year Treasury yield is back negative. Just an observation.

  • Yield on 1 Day Chinese Gov’t Bond 1.86%
  • Yield on 10 Year Chinese Gov’t Bond 3.12% (bond price is 104.50)
  • Yield on 10 Year China Development Bank Bond 3.66% (bond price is 109)

 


Commodities were firmer on both the Dalian and Shanghai