Hope all is well!

Overnight News

• Huawei Sues the US Gov’t: Interesting strategy…
• Dual Sessions: No major news though mainland investors have picked up on the prominence of technology and innovation in speeches
• Han’s Laser Technology was removed from MSCI Indices as the stock reached 28% foreign ownership limit.

Hang Seng followed the US market lower -0.89%/-258 index points on volumes above the 1 year average but -5% day over day with only 12 advancers and 36 decliners. The indice’s time above 29,000 was short lived though the pullbacks are a good thing. Tencent lost -1.88%/-55 index points as AIA eased -1.29%/-36 index points and HK Exchange -2.51%/-24 index points. Within the MSCI China All Shares’ HK stocks, trade sensitive tech lost -3.15% Huawei’s US lawsuit hit ZTE -8.46% with Apple Suppliers AAC -3.89% and Sunny Optical -5.61%, healthcare -2.26% on trading profits and continued uncertainty on government pricing policies, real estate -1.93% while Tencent pulled communications -1.53%. Autos were off on profit taking and Geely’s disappointing Feb sales numbers. Southbound Connect volumes were elevated in mixed trading as mainland investors appear focused on buying HK banks and brokerages.

Shanghai & Shenzhen rallied into the close to gain +0.14% and +0.49% on strong volumes that were 5% higher day over day and well above the 1 year average and strong breadth. Within the MSCI China All Shares’ mainland stocks, staples was off -2.45%, real estate –2.29% and discretionary -1.83% while materials and tech gained +0.54% and +0.26%. Tech had an interesting divergence as mainland investors focused on the prominence of technology and innovation at the Dual Sessions. Securities brokers have been very strong on the market’s rebound and coming launch of the Shanghai tech board. Northbound Connect volumes were strong again though foreigners were net sellers overnight in profit taking.

MSCI indices are built for foreign investors. In the case of China, only Stock Connect eligible securities are eligible for inclusion in MSCI indices. China does have foreign ownership limits of 28% which has not been an issue due to the limited foreign participation. Han’s Laser Technology has been a favorite of foreign investors as evidenced by the stock hitting the 28% foreign ownership limit. Since new investors or inflows can’t buy the stock MSCI removes it from its indices immediately. The situation and the timing are far from ideal for both Chinese regulators and MSCI. It does bring the issue to the forefront as China will likely changes the rule. The sooner the better.

The IMF was approved for a QFII license which would allow them to buy mainland stocks and bonds.

Chinese EV maker Nio lost -21% yesterday on missed earnings and a decision to not build their own cars but rather do via joint venture. With Tesla building their own factory, investors aren’t waiting to see how the battle plays out. Nio’s IPO lock up ends this coming Monday though the stock is above the $6.26 IPO price.

CNY 6.70

• Yield on 1 Day Chinese Gov’t Bond 1.73%
• Yield on 10 Year Chinese Gov’t Bond 3.20%
• Yield on 10 Year China Development Bank Bond 3.61%

Commodities were for the most part lower on both the Shanghai & Dalian Exchanges