TGIF, Happy St Pat’s & Quad Witching Day!

Key Catalysts

• Treasury Secretary Mnuchin’s late afternoon CNBC interview confirmed that while a Trump Xi March meeting won’t occur the two sides are engaging in constructive dialogue with an April deal signing feasible.
• Premier Li’s post Dual Sessions press conference mid-morning was well received by markets as it confirmed policy makers’ support of the economy through a 1 trillion RMB VAT cut, cutting business fees and red tape, and credit support for private companies. Raising domestic consumption was specifically mentioned while manufacturers and commercial companies will see cuts in electricity rates. The two hour conference covered a lot of ground exhibiting a clear commitment to stimulate the economy.
• The Foreign Investment Law has been approved by National People’s Congress replacing three previous laws covering foreigners doing business in China. The law’s objective is to level the playing field through “equal treatment” with domestic firms while addressing US concerns on joint ventures, forced technology transfers and limited legal repercussions. The law won’t be effective until January 2020 in order for further enhancements to be incorporated. 

The Hang Seng gained +0.56%/160 index points to close above the 29,000 level while also completing the Golden Cross (50 day moving average crossing above the 200 day moving average). Volumes surged 26% day over day above the 1 year average with FTSE’s rebalance a factor (I would never name names but there is a small passive investment company that utilizes FTSE indices in a Pennsylvania town where George Washington spent a winter). Breadth was positive with 37 advancers and 12 decliners. Energy giant CNOOC gained +2.91%/22 index points despite a JP Morgan analyst downgrade while Ping An continues to bask in its post earnings glow gaining +1.05%/+15 index points. Tencent gained +0.39%/11 index points after the 9^th round including 93 online games were approved though the gaming giant wasn’t included. Macao gaming stocks had a great day after their gaming licenses were extended through 2020 putting to bed some speculation that China could hurt the US companies and particularly the casino company of a Trump donor by cancelling their licenses. Galaxy +2.62%/9 index points, Sands China +3.1%/8 index points and Melco +2.3%. Within the MSCI China All Shares’ HK stocks, real estate +2.14% following new home price gains reported, energy +1.43%, staples +1.36%, discretionary +1.29%, health care +1.21% while utilizes was off -0.21%. Southbound Connect volumes were above the 1 year average but off the recent exuberance levels as mainland investors were net sellers.   

Shanghai & Shenzhen gained +1.04% & +1.43% on volumes lower day over day and only 2X the one year average while breadth saw 2.5 advancers for every 1 decliner. The Shanghai Composite closed above the 30,000 level as it is approaching the Golden Cross. Within the MSCI China All Shares Index mainland stocks, real estate was the top gainer +3.39%, discretionary +1.91% led by food/beverage/liquor stocks, staples +1.58%, materials +1.52%, industrials +1.5% and healthcare +1.3%. Interesting that tech and communications lagged as much as utilities with returns of +0.62%, +0.09% and +0.43%. Interesting that there was little to no comments on the performance of real estate from any of our brokers nor in the media. Northbound Connect volumes were elevated which is becoming the new normal as foreign investors were net buyers with MSCI Inclusion stocks Ping An seeing 2 to 1 buyers and Kweichow Moutai seeing a slight outflow.

Meituan Dianping (3690 HK) jumped 11.7% on broker chatter of a short covering.

Credit Suisse is taking a cue from recent weakness in Shenzhen listed small cap securities recommending investors take profits in Chinext stocks according to Bloomberg. We have seen a notable but not outsized outperformance of Shanghai listed mega cap caps stocks on chatter of the CSRC looking at the amount of margin being utilized by retail investors.

CNY 6.71

• Yield on 1 Day Chinese Gov’t Bond 1.98%
• Yield on 10 Year Chinese Gov’t Bond 3.19%
• Yield on 10 Year China Development Bank Bond 3.62%
  
  
  

Commodities were lower on the Shanghai & Dalian Exchanges w/Dr. Copper -0.61%