January Trade Data & FDI, BABA Gets BILI With it, Vocational Education School Push, MS Research Piece
Good morning! Great to get home as hearing the little feet and little voices is a great way to wake up after a few days away. Apologies for no note yesterday morning as we hosted a webinar around our European listing early yesterday morning. JP Morgan had an interesting Inside ETFs presentation on the duration/yield of the US bond market indices. In a nutshell: all risk/no reward.
January Data in CNY
- Trade Balance 271B versus estimate 245B and Dec’s 394B
- Exports 13.9% versus estimate 3.8% and Dec’s 0.2%
- Imports 2.9% versus estimate -1.9% and Dec’s -3.1%
January Trade Data in US $
- Trade Balance $39B versus estimate $34B and Dec’s $57B
- Exports 9.1% versus estimate -3.3% and Dec’s -4.4%
- Imports -1.5% versus estimate -10.2% and Dec’s -7.6%
Foreign Direct Investment +4.8% versus Dec’s 24.9%
Takeaway: Predicting the future is very difficult as economists incorrectly embraced the dismal in the dismal science following December’s poor trade data. I like to show China’s trade data in both CNY and US dollar as the media will only report on China’s -1.5% import though in CNY it was +2.9%. The US is 16% of China’s exports which highlights how reporting a country’s economic data in a foreign currency make no sense to me. If anything China should report trade data in the euros since the EU is a larger trading partner than the US. The data was surprisingly strong though there likely was an effort to export and import in advance of Chinese New Year’s. FDI is foreign companies building factories in another country. The importance for China is many Chinese “exports” are US companies that own or rent factories in China. Investments into China from US companies increased +124.6%. December and January show the foreign companies continue to invest in China.
Hang Seng declined -0.23% on elevated volumes above the 1 year average and mixed breadth of 25 gainers and 23 decliners. Brokers were called last night a consolidation day after a strong January and Tencent was off -1.73%/48 index points on no news and surprisingly no broker color though the stock is up 35% from its October 30th low. AIA was up +0.4%/11 index points. Apple supplier Sunny Optical slumped -5.03% after reporting disappointing results which dragged fellow supplier AAC -2.85%. Within the MSCI China All Shares’ HK stocks, healthcare gained +1.04% on the recent news of VAT cut while staples gained +0.66%. Tech was -1.24% dragged down by Sunny while Tencent weighed on Communications -1.16%. Real estate was off -1.14% on worries around January prices. Southbound Connect volumes elevated in mixed trading with volume leader Geely gaining.
Shanghai & Shenzhen were -0.05% and +0.66% on elevated trading and mixed breadth as mainland investors took some profits and awaited the outcome of US China trade talks which appear to be going well. Within the MSCI China All Shares’ mainland stocks, Staples and discretionary were up +1.07% and +0.66% led by liquor stocks while tech had a strong day gaining +0.43%. Communications and financials were off -1.18% and -0.6% as worries linger on policy to support lending to private companies linger on the banks. Education names were strong as 40 vocational colleges will be established by private companies. Northbound Connect volumes were strong with buyers dominating as volume leader Kweichou Moutai saw outsized buying. Healthcare was a favored sector by foreign investors as well.
Regulatory filings showed that Alibaba owns 10mm shares of Bilibili’s (BILI), an online video company, making the e-commerce company its largest shareholder. BILI is trading up pre—market about 5%. Ant Financial purchased WorldFirst, a UK based electronic payment firm. The move should help Ant’s Alipay capture Chinese tourists as they travel to the UK. Ant tried to do the same here in the US by buying Moneygram though US regulators blocked the deal.
Bloomberg had a nice write up on a Morgan Stanley research piece that predicts foreign ownership of Chinese mainland stocks will rise to 10% from 2.6% which means $100B to $220B will flow into the mainland stock market. MS expects Chinese A Shares to become 13% of MSCI Emerging Markets within 5 to 8 years. 2019 should see $70B to $125B of inflows into mainland stocks. Healthcare and consumer stocks are favored sectors. I’ve not seen the report though MSCI isn’t adding all 3,000 stocks to their indices. They are adding the 235 stocks within the MSCI China A Inclusion Index! The MSCI China A Inclusion Index has a free float market cap of $745 billion.
While Caterpillar reported weaker Asia Pac sales, Chinese excavator sales improved 10% year over year exceeding estimates of -10% decline according to HK trading desk.
- Yield on 1 Day Chinese Gov’t Bond 1.58%
- Yield on 10 Year Chinese Gov’t Bond 3.10%
- Yield on 10 Year China Development Bank Bond 3.73%
Commodities were mixed on the Shanghai & Dalian commodity exchanges though Dr Copper gained +0.48%.