Daily Posts

Yum China Q4 Earnings Beat (Rumors of the Chinese Consumers’ Death have been greatly exaggerated), Caixin PMI Manufacturing, QFII/RQFII Rules Relaxed

TGIF! A lot of China news today.

  • Caixin China PMI Manufacturing                48.3 versus estimate 49.6 and Dec’s 49.7

Takeaway: Caixin PMI is released by private companies Caixin Media and IHS Markit. The manufacturing survey comes from 500 manufacturing companies versus the official National Bureau of Statistics’ 3,000 companies.  Due to the smaller sample size it tends to be more volatile than the official number. The Caixin tends to survey small/medium size companies versus larger companies by the NSB. That likely explains the weakness as smaller manufacturs are likely in the US tariff sweet spot. Predicting the future is very difficult which is why I don’t do it but I have to point out that analysts appear to be slow to the tariff trade roll off as they missed this one by a country mile.

Liu Shiyu, the new head of the CSRC, has hit the ground running as the regulator announced significant changes to the QFII and RQFII access programs. While the programs have been geared to traditional/plain vanilla equity and bond investing, the new proposed rules changes would allow foreign investors further access to futures, options, commodities, private equity funds, access the NEEQ/micro cap/OTC stock board and utilize margin. The new rules would also allow foreign investors to invest into local alternative managers. These programs had become obsolete due to Connect trading though the new rules will provide historic foreign institutional investors more tools such as hedging their China investments.

Hang Seng jumped +0.9% at the open but slide to end the day at -0.04% /-11 index points on moderate volume though down -19% day over day and mixed breadth of 20 gainers and 28 decliners. HSBC declined -0.9%/-23 index points followed by AIA’s -0.85%/-21 index points and Tencent’s +0.58%/16 index point gain. I believe the market reaction would have been stronger based on positive developments in trade talks, the Fed and US corporate earnings if it wasn’t for Chinese New Year’s next week and the Caixin PMI print taking. While HK is open for a half day on Monday and Friday it is going to be very slow. Within the MSCI China All Shares’ HK listings, healthcare care +1.49% as the sector appears to be rebounding, discretionary jumped +1.43% while materials jumped +1.05%. Macau January revenue fell -5% though that beat the -9% estimate. Real estate was the only sector down for the day -0.37%. SouthBound Connect was closed.

Shanghai & Shenzhen gained +1.43% and +1.3% on light volume and strong breadth with only 93 declining stocks. Mainland investors were in a festive mood as they cheered the US China trade talks, QFII/RQFII and most importantly SH/SZ Exchanges agreeing to curtail margin driven selling on stock collateral pledges. The latter issue has weighed on the markets as it declined companies who couldn’t access credit borrowed against their stock which triggered margin calls. While many policies are being put in place to help companies access credit, this policy change is a big help particularly to small cap stocks. Within the MSCI China All Shares’ mainland stocks, tech ripped +3.37%, healthcare +2.87%, and communications +1.24% as only utilities and real estates suffered small losses. Foreign investors were also in good spirits as Northbound Connect volumes were strong with buyers dominating sellers nearly 2 to 1. MSCI Inclusion heavyweights seeing buyers outpace sellers in Kweichow Moutai 2 to 1 and Ping An 5 to 1.

Yum China (YUMC) reported Q4 earnings this morning pre-market that exceeded analyst expectations. Following YUMC, LMVH and Diageo’s strong China results, Alibaba’s results and Non-Manufacturing PMIs, the belief that China is a one dimensional economy reliant on exports can be put to rest. One item that jumped out to me was the large percentage of YUMC’s sales were done via mobile payment.

  • Revenue $1.91B versus estimate $1.92B
  • Revenue +2% year over year though would have been 7% due to FX
  • EPS Adjsuted $0.12 versus estimate $0.09
  • Sales +2% versus estimate -0.4%
  • Mobile payments accounted for 65% of Q4 sales

MSCI Chairman & CEO Henry Fernandez was interviewed on Bloomberg TV yesterday on China’s opening up. He provided a balanced perspective on how China has opened up its financial markets.

CNY 6.73; big back up -0.52%; I did notice one sell side firm revised their CNY forecast follow the epic run. They cut their year end estimate from 7.10 to 6.90.

  • Yield on 1 Day Chinese Gov’t Bond 1.65%
  • Yield on 10 Year Chinese Gov’t Bond 3.10%
  • Yield on 10 Year China Development Bank Bond 3.71%


Commodities were generally up on both the Dalian and Shanghai.