Daily Posts

PBOC MLF, NDRC Auto Support, New Orient Education Beat

Hope all is well!

Hang Seng  traded in a narrow range  to end the day at +0.01%/+2.75 index points on light volume and positive breadth of 29 advancers and 16 decliners. One might consider the flat a day “win” after the mauling US stocks took. Brokers all commented that it was a quiet day lacking catalysts though some considered it a consolidation day since the uptrend in place since January 4th. Headlines were still mentioned the FT article that Larry Kudlow denied on a China trade team not coming. The article seemed suspicious considering Vice Premier Liu He will be here next week. The market also absorbed the Huawei CFO extradition well. Tencent was off -0.77%/-21 index points while China Mobile gained +1.18%/+18 index points. Within the MSCI China All Shares’ HK stocks, tech was off -1.31% led lower by Apple supplier -3.14% while energy was off -1.24%. Defensive plays utilities and healthcare were up 0.84% and +0.81%. Southbound Connect volumes, ie mainland investors of HK stocks, were active in moderate volumes. Volume leader China Construction Bank saw 2 to 1 buyers while #2 volume leader Tencent saw outsized buying of 10 to 1. Speculation on my part but mainland buying of Tencent leads me to believe a gaming approval could be coming.

Shanghai & Shenzhen also traded in a narrow range to end the day +0.05% and +0.13% on light volumes with advancers outpacing decliners by a small margin. Like HK it was a quiet session though within the MSCI China All Shares’ mainland stocks, communications gained +1.45% followed by utilities +0.84% and materials +0.67%. Tech was down -0.02% as the sector has become trade war barometer. Northbound Connect volumes, foreign/global investors, were moderate with buyers outpacing sellers. MSCI Inclusion stock Kweichow Moutai was the volume leader in 2 to 1 buying.

PBOC announced RMB 257.5B of medium term loan facility (MLF) for private companies that historically have a hard time garnering access to bank loans. Small medium enterprises can take a one year loan at 3.15% that can be rolled over.

The National Development and Reform Commission released a statement that policies supporting the purchase of autos and home appliances. There appeared to be an emphasis on auto sales which have garnered media attention as the 2018 year over year purchases fell versus 2017. While the media pins the auto sales fall on China’s slowing economy, the reality is the expiration of a tax credit at year end 2017. The NDRC reported that 30 million vehicles (cars and trucks) were sold in 2018. Electric vehicles was also emphasized.

New Orient Education (EDU) kicked off earnings season yesterday after the close beating analyst expectations on both revenue and EPS. The stock is trading up pre-market at $71 versus yesterday’s close $65.90. Two brokers have upgraded the company already.

  • Total Enrollment +23.6%
  • Q2 Revenue $597mm versus estimate $577mm
  • Q2 EPS Adjusted $0.14 versus estimate $0.02
  • Q3 forecast revenue $769mm to $793mm


CNY 6.78

  • Yield on 1 Day Chinese Gov’t Bond 1.80%
  • Yield on 10 Year Chinese Gov’t Bond 3.12%
  • Yield on 10 Year China Development Bank Bond 3.73%

 


Commodities were mixed both the Dalian and Shanghai