TGIF!

Feb Data in CNY Year over Year

• Exports                 -16.6% versus estimate -16.6% and Jan’s 13.9%
• Imports                -0.3% versus estimate -0.3% and Jan’s 2.9%
• Trade Balance    34.46B  versus estimate $26.2B and Jan’s $39.16

Feb Data in US $ Year over Year

• Exports                 -20.7% versus estimate -20.7% and Jan’s 9.1%
• Imports                -5.2% versus estimate -5.2% and Jan’s -1.5%
• Trade Balance    $4.12B versus estimate $.12B and Jan’s $39.16

Takeaway: Chinese New Year had a significant effect on Feb’s data. Chinese New Year/Lunar New Year can be in January or February. If we combine Jan and Feb Exports would be -4.6% while Imports -3.1%. Not so bad. The Year over Year comparisons will get worse not better as tariff front running began in Feb 2018. We can expect 2019 Exports to decline when compared to 2018 as Chinese exporters rushed to get goods to the US prior to tariffs being implemented. While the backward looking economic data will garner headlines, markets are forward looking and will be more concerned with the significant stimulus that is trickling through the economy.

Citic Securities, a large mainland investment bank and research firm, issued a selling rating on People’s Insurance Company of China (PICC, 601319 CH) after the company doubled in eleven trading days. The stock closed at 7.29 CNY on 2/20 and rose to 14.99 CNY Thursday. Huatai Securities issued a sell rating on CSC Financial (601066 CH) after the stock doubled in eleven trading days as well. Sell ratings are rare from any investment bank globally including China though a 100% move in eleven days warrants a rating/price target change. Financials, particularly brokerage stocks, have performed well YTD as the Shanghai Tech board and renewed interest in the stock market make them a beneficiary. There is a view that China’s regulator is talking down the market. Remember the CSRC (SEC of China) has a new Chairman who has been given the task of turning around a market that performed poorly in 2018. An orderly upward market would be ideal but hard to come by. The intensity of the upward move YTD has been dramatic thus pullback will be equally dramatic.

Where do we go from here? The mainland has been overdue to a pullback and/or consolidation. It is now upon us. An onshore broker revealed an embarrassing data point recently: Mainland active managers missed the YTD move. Ooops. We could see the buy dip from professional investors in China. We also the MSCI inclusion coming and improving economic data once we overcome year over year tariff front loading. The WSJ interview with US China ambassador revealed that the US and China don’t have an exact date for the summit. Beyond the click bait headline, the article felt positive to me on the progress that has been made.

The Hang Seng declined -1.91%/-551 index points on strong volumes +33% day over day and 50% higher than the 1 year average with only 6 advancers and 44 decliners. The HSI is back below 30k just above 28k. US equity weakness and EU concerns combined with mainland weakness led to a rough day. Tencent lost -2.31%/66 index points though after the close a broker mentioned a new patch of game approvals occurred including 1 for Tencent and 2 for Netease. CCB and AIA were off -2.68%/-61 index points and -2.09%/-57 index points though positives were few and far. Within the MSCI China All Shares’ HK stocks, real estate was off -4.69%, materials -4.39% and discretionary -3.84%. Communications outperformed with a -1.88% as 5G takes center stage at the Dual Sessions. Southbound Connect volumes were elevated with sellers outpacing buyers though volume leader Tencent did see buyers slightly outpace sellers. Interesting CCB saw 2 to 1 buyers.

Shanghai & Shenzhen fell -4.4% and -3.79% on volumes that increased slightly day over day in volumes 2X the 1 year average in market action a local broker aptly described as “tragic”. Breadth did a 180 as only 374 stocks advanced on both exchanges. Materials, munications and financials declined by more than 5%, energy, real estate, industrials and discretionary fell more than 4%, etc. Tech outperformed with only a 1.26% decline which shows the extent of the negative move. Northbound Connect volumes were very high with foreign investors net sellers but not in a significant fashion.

The draft law on protecting foreign firms in China is on its way to being signed by the NPC. The mainland press is highlighting the law as level the playing field for foreign firms in China while exhibiting how China has opened up.

Do remember a few years ago when China’s FX reserves were the highly scrutinized by the media? The networks would call central casting for the usual round up of China bears to opine on the coming apocalypse. I was reminded of this as Feb FX reserves were reported last night. Yes that is a T as in trillion.

FX Reserves       $3.090 trillion versus estimate $3.087 trillion and Jan’s $3.087 trillion.

Tencent raised its stake in Vipshop, an e-commerce company, to 8.7% from 7.8%.

Telsa has arranged a $521mm loan from CCB, AgBank, ICBC and Shanghai Pudong Development Bank to fund the building of their Shanghai factory.

CNY 6.71

• Yield on 1 Day Chinese Gov’t Bond 1.72%
• Yield on 10 Year Chinese Gov’t Bond 3.17%
• Yield on 10 Year China Development Bank Bond 3.59%

Commodities were lower on both the Shanghai & Dalian Exchanges