Daily Posts

Trade War Peace Rally, CPPCC Begins/NPC Tomorrow

Hope you had a great weekend!

Key Catalyst Overnight:
The WSJ reported the US & China are in the “final stages” of a trade deal culminating in a late March Trump Xi meeting in Florida. The WSJ has been White House source which adds credibility to the story. Increased Chinese buying of US goods is a given while ensuring intellectual property and a forum to air disputes is being addressed. China & HK rallied strongly though faded in the afternoon to curtail gains. While most brokers attributed the afternoon pullback to profit taking, one noted a headline that hinted at China pushing back at some US demands. That view was not shared in other broker reports.

Hang Seng reached a high of +1.49%/147 index points though pulled back in the afternoon to gain +0.51% on very strong 36% higher than Friday and 50% higher than the 1 year average. Breadth was strong with 31 advancers and 14 decliners as Tencent gained +3.15%/90 index points on no news while China Mobile declined -2.68% after the company’s chairman retired and China Tower reported weak earnings weighed on what we used to call the telecom sector. China Construction Bank +1.29%/30 index points. Within the MSCI China All Shares’ HK stocks, real estate gained +2.85% after strong February sales, healthcare had a strong day +2.79% as investors speculate on the sector being a focus during the Dual Sessions’ this week, communications was led higher by Tencent. It was a very broad rally though staples was dragged lower -0.83% by retailer Sun Art’s poor results. The Hang Seng is approaching the key 30,000 level. Southbound Connect Volumes were VERY strong with more buyers than sellers as volume leader Tencent had 2 to 1 buyers to sellers.

Shanghai & Shenzhen gained +1.12% and +2.21% on VERY high volumes nearly 3X the 1 year average and 57% higher than Friday. The SH & SZ reached intra-day highs of +3.23% and +4.03% though came down in the afternoon session on profit taking. Within the MSCI China All Shares’ mainland shares, real estate gained +3.68% while tech traded higher on trade news +2.08% on a broad rally that saw all sectors in the positive. Shanghai Comp exceeded and closed above the 30k level. Market breadth was quite strong with only a few hundred decliners. Northbound Connect volumes were MASSIVE in mixed trading as foreigners were slight net sellers.

The WSJ had a well written article on the MSCI inclusion that was written by James Mackintosh. While the article noted the potential inflows into Chinese A Shares due to the MSCI inclusion, it also speaks to the potential effect of a trade war peace accord and bottoming in the economy. It includes a great chart showing the significant outperformance of the MSCI China Overseas Index (US listed Chinese companies) versus MSCI China and mainland markets. The performance disparity is driven by the sector composition as many Chinese internet and e-commerce companies have historically listed in the US.

There was increased chatter surrounding the new tech board on the Shanghai as IPO rules will be disseminated by sooner than anticipated.

The CPPCC started today while the NPC begins tomorrow. The dual sessions are major policy meetings on both economic and society issues. What to expect:

  • GPD target ~+6%
  • Fiscal deficit ~3% of GDP
  • Increased VAT cuts
  • Credit growth targeted to private/SMEs
  • No benchmark interest rate cut but bank reserve requirement ratio likely to be reduced
  • Raise domestic consumption especially electric vehicles

 


Spending a few days in Las Vegas, I couldn’t help but notice the abundance of paper maiche pigs. No I wasn’t attending a Jimmy Deans sausage conference! Casinos were catering to Chinese New Year’s tourists by celebrating the year of the pig. To the extent Las Vegas casinos were successful in removing Chinese tourists from their savings I don’t know but it did peak my interest as I don’t gamble so I had some time on my hands at night. Based on the impressive Balagio display, I read the casino’s parent MGM Resorts 2018 earnings report. MGM China net revenue increased 33% to $687 million in Q4 versus a 6% revenue increase for their Las Vegas Strip Resorts’ $1.4 billion in revenue. MGM Macau had a 97% room occupancy rate for 2018 while the recently opened MGM Cotai had a 90% room occupancy rate. I am not a casino analyst though I would say rumors of the Chinese consumer’s death have been greatly exaggerated.

CNY 6.70

Short end of the curve dropped

  • Yield on 1 Day Chinese Gov’t Bond 1.46%
  • Yield on 10 Year Chinese Gov’t Bond 3.23%
  • Yield on 10 Year China Development Bank Bond 3.69%

 


Commodities were lower with Copper of -1.15% on both the Shanghai & Dalian Exchanges