Daily Posts

Dual Sessions Review, HK & Shanghai Comp Exceed Technical Levels

Hope all is well!

Dual Sessions’ CPPCC & NPC Overnight News

  • National Development Reform Commission Chairman He Lifeng’s press conference stressed opening up agriculture, mining, manufacturing and the service industries to foreign companies. Also emphasized was raising domestic consumption with an emphasis on electric vehicles and environmentally friendly household appliances. Consumer spending accounted for 76.5% of GDP growth in 2018.
  • Development of the Greater Bay area which encompasses Guangdong, HK and Macao was emphasized as well.
  • 5G was an area of emphasis
  • Electricity costs for manufacturing, industrial and commercial use should be cut 10%.

 


The Hang Seng closed above the 29,000 level +0.26%/+76 index points on volumes above the 1 year average but off -3% day over day as breadth was mixed with 27 advancers and 19 decliners. HSBC gained +0.54%/14 index points while Wharf Real Estate gained +6.32%/13 index points though energy giant CNOONC was off -1.47%/-10 index points. Within the MSCI China All Shares’ HK stocks, staples gained +1.95% on domestic consumption being an emphasis of at the Dual Sessions, trade sensitive tech +1.16% and materials +1% as they are a beneficiary of the electricity price cut. Real estate gained +0.72% following a profit alert from Evergrande +1.35% and chatter of property restrictions being lifted. Utilities and energy were off -0.84% and -0.74% on news of electricity price cuts. Southbound Connect volumes were strong as mainland investors were net buyers of HK stocks.

Shanghai & Shenzhen gained +1.57% and +1.49% with the former closing above 31,000 on strong volumes 3X the 1 year average and 23% higher day over day accompanied by strong breadth. Domestic investors cheered the positive news from the Dual Sessions which highlight policy makers effort to support the economy. Within the MSCI China All Shares’ mainland stocks, materials gained +2.39% while interestingly utilities gained +2.24% and financials +1.6%. Another interesting divergence from HK was staples and real estate -0.97% and -0.69%. Northbound Connect volumes were strong which has become the new normal. Turnover was 32 billion RMB which is 2X the historical average. Trading was mixed today as sellers slightly outpaced buyers.

Outside of the Dual Sessions and US listed Chinese companies reporting Q4 earnings, it has been fairly light on individual stock news. Thus far we have seen a broad rally as Chinese markets rebound on further stimulus, the MSCI inclusion and positive developments in the trade war. US equities are meeting resistance at the 2800 level which prices in a lot of good news. A rotation into EM equities due to relative and historical valuation discounts as YTD US listed EM ETF flows are $12B. Buying the “blob” ie broad based EM provides the following sector exposure: financials 24.4%, energy 8%, materials 7.7% and industrials 5.5%. Yes we get tech 14%, discretionary 13.4% and communications 12.%. The point I make is nearly half of broad EM exposure is in limited growth sectors which is how and why active managers outperform the index. Unsurprisingly EM tech has outperformed the index’s return of 26% by 29%. Simply holding that one sector doubled one’s return. Food for thought.

Boazun reported earnings prior the US open this morning with a strong topline revenue increase though EPS appeared to come in light versus analyst expectations. Stock is off from yesterday’s close of $39.44 to $37.78 in pre market trading.

  • Q4 Revenue increased 40% year over year to $320mm
  • Gross Merchandise Value increased 42.8%
  • Net Income +27.8% to $29.9mm

 


CNY 6.70

Curve flatlined overnight

  • Yield on 1 Day Chinese Gov’t Bond 1.74%
  • Yield on 10 Year Chinese Gov’t Bond 3.22%
  • Yield on 10 Year China Development Bank Bond 3.68%

 


Commodities were lower on both the Shanghai & Dalian Exchanges