TGIF!

Hang Seng gained +1.25% on slightly below average volume with 43 advancers and 5 decliners to end the week up +1.59%/+4.82% YTD. The WSJ leak that Steve Mnuchin was angling for an easing of tariffs sent Asian markets higher despite a subsequent denial from the Treasury Department. Though a subscriber myself, WSJ is clearly a tool for the administration as I find their reporting and editorials to be universally negative on China.  Despite the denial, clearly this was a trial balloon which hopefully folks in DC noticed how well the market responded. The Hang Seng gained 335 index points fueled by Tencent’s gain of +1.75%/worth 49 index points followed by insurance giant AIA’s +1.82% worth 46 index points. Yesterday we discussed the several small HK stocks that experienced a flash crash as Jiayuan International Group, a HK real estate developer, was rumored to have defaulted on a bond payment sending the stock down to HK $2.52/-80% from Wednesday’s close of HK $13. The company denied the rumor leading to a rebound of +74% to close the day at HK $4.40 though still very far from Wednesday’s close. Very important to remember this is a small company though very embarrassing for the HK Stock Exchange. Within the MSCI China All Shares’ HK stocks, healthcare had a very strong day +3.98% as news that December’s debilitating drug procurement program would be adjusted. Multiple institutional brokers had positive comments which has been building over the last week or so. Tech was a stand out gaining +3.81% led by Apple supplier’s Sunny Optical & AAC which have been trading with a higher correlation to trade news. Real estate +2.83% and discretionary +2.47% though every sector was up other than Utilities. Southbound Connect volume was above average in mixed trading though Tencent saw 2 to 1 buying (again). Could mainland investors know something about online gaming approvals? Time will tell!

Shanghai & Shenzhen gained +1.42% & +0.99% on the WSJ “leak” on moderate volume/+10% day over day and strong breadth. For the week/YTD, the SH & SZ were up +4.09%/+5.63% and +4.28%/+5.82%. within the MSCI China All Shares’ mainland stocks, healthcare gained +2.85%, staples +2.67% led higher by liquor stocks, materials +1.85% led higher by steel, financials +1.72% though every sector was up on the day. Another unheralded factor was the coming release of the Peppa Pig movie leading to a social media frenzy. Several companies that make Peppa Pig toys performed well. Northbound Connect volumes were very high with MSCI China A Inclusion stock Kweichow Moutai experiencing MASSIVE buying. Overall Connect volumes were very high though Kweichow’s 6 to 1 buying to selling is very unusual.

Caixin had an interesting article on foreign investors in China’s commercial real estate market. Over $9 billion was invested by foreigners in 2018 led by Blackstone and Singapore’s CapitalLand.

China’s largest online movie ticketing platform Maoyan Entertainment filed for a HK IPO with a trade date of January 31^st. The base offering is 132mm shares at a price between HK $14.80 to $20.40 making the shares worth $250mm to $345mm and the full market cap of the company worth between $2.1B to $2.9B. $8.3B of movie tickers were sold last year in China. Bankers on the deal include lead China Renaissance, Morgan Stanley, Bank of America Merrill Lynch, CICC, UBS, CSCI and AMTD.

An onshore broker reported that 5G licenses will be rolled out to telecom providers beginning in the second half of 2019. The licenses are temporary as the gov’t will allow for 5G to be rolled out in certain cities to test how it goes. Makes sense to me!

Deputy Head of the PBOC Pan Gongsheng reported that foreign investors invested over $100B into China’s bond market in 2018. 1,186 foreign investors own only 2.3% of the $12.72 trillion market. Remember China’s bond market is not included in any bond index as this point.

Sunday night the National Bureau of Statistics will report Retail Sales, Industrial Production, Fixed Asset Investment, Jobless Rate and GDP. China Overnight will be delivered Monday morning though I’ll resend the data Tuesday as well.

CNY 6.77

• Yield on 1 Day Chinese Gov’t Bond 1.73%
• Yield on 10 Year Chinese Gov’t Bond 3.09%
• Yield on 10 Year China Development Bank Bond 3.69%

Commodities were mixed on both the Dalian and Shanghai with precious metals lower