Daily Posts

Risk Off, Naspers’ Tencent Spin Off

Good morning! Hope you had a great weekend. 

Key Catalysts Overnight

  • Friday’s disappointing data included the US Manufacturing PMI print, which analysts had expected to rise, Germany’s Manufacturing PMI plunge to 44.7 contributed to an inversion of the US yield curve casting a pall over global equities Friday that led to a risk off in Asia Monday. Government bond 10 year yields globally provides an interesting perspective (Japan -0.09%, Germany -0.01% and US 2.33%). Germany’s IFO survey beat expectations this morning which may give equity markets a reprieve.
  • US Trade Representative Lighthizer and Treasury Secretary Mnuchin arrive in Beijing for meetings Thursday. This visit will be followed by Vice Premier Liu He visiting DC the week of April 3rd. The US PMI print puts pressure on a deal to be done as President Trump stated a deal is “close” on Friday.
  • Speaking at the China Development Forum this weekend PBOC Governor Yi Gang reiterated opening China’s financial markets to foreign firms and leveling the playing field with domestic firms. This news was likely welcome to international delegates including many US asset management CEOs including Ray Dalio, Steve Schwarmann of Blackstone and Lawrence Fink of BlackRock.
  • Nine firms were approved to list on the Shanghai Stock Exchange’s new Science & Technology Board.
  • Despite the recent weakness in macro, earnings season is in full effect in China which is driving the micro. This is a busy week for earnings which will drive sector performance as it did last week with property, staples and healthcare outperforming while tech, telecom and utilities underperforming. Thus far earnings have been weak as expected though it is important to recognize China’s fiscal and monetary stimulus is trickling down which should lead to better results in the future.
  • South Africa’s Naspers will spin off its 31% Tencent stake and other internet investments in a separate Amsterdam listing. The Tencent holding drives the performance of Johannesburg listed company and the South African stock market where it accounts for 25% of market cap. CEO Bob Van Dijk, who rejoined the company after a hiatus after making the Tencent investment, had previously stated he wanted to extract the value of the stake. Mission accomplished! Naspers is off -0.31% in trading today. 

The Hang Seng joined Asia in a sea of red falling -2.03%/-590 index points to 28,523 on volumes above the 1 year average and slightly higher than the Friday’s volumes as the index fell back below 29,000. There were only 2 advancing stocks and 48 decliners led by Tencent’s decline of -3.07%/-87 index points, AIA -2.2%/-60 index points and HSBC -1.62%/-45 index points. AAC rose +4.63%/5 index points as analysts have upgraded the company despite a weak earnings report. Within the MSCI China All Shares’ HK stock fell -2.36%, led by energy’s -4.11% on global recession worries, healthcare -3.99% on concerns China’s generic drug buying would be expanded beyond the 11 city trial, discretionary -2.86%, materials -2.71%, communications -2.48% and financials -2.33%. Tech “outperformed” falling -0.97% and utilities -106%. Southbound Connect volumes were moderate with buyers outpacing sellers as volume leader Tencent had 2 to 1 buyers while recent favorite pork giant WH Group had 15 to 1 buyers followed by China Mobile with equally impressive buying. 

Shanghai & Shenzhen declined -1.97% and -1.44% on volumes 2X the 1 year average and up slightly from Friday’s volume on poor breadth of 2 to 1 decliners to advancers. Within the MSCI China All Shares’ mainland stocks dropped -2.27% led lower by financials -3.1%, communications -3.09%, energy -2.91%, real estate -2.72%, staples -2.67%, and healthcare -2.37%. Tech fell a mere -1.22%. Northbound Connect volumes were elevated with foreign investors turning sellers as they sold $1.55B of mainland stocks. Clearly some of the hot foreign money left on global recession fears. 

President Xi signed up Italy for the Belt & Road initiative in a first for a G7 country. 

Alibaba followed up its investment three years ago in Israeli augmented reality firm InfinityAR by buying the company outright though terms were not released. 

CNY 6.71

  • Yield on 1 Day Chinese Gov’t Bond 2.12%
  • Yield on 10 Year Chinese Gov’t Bond 3.14%
  • Yield on 10 Year China Development Bank Bond 3.56%

Commodities took the brunt of global recession fears slumping on the Shanghai & Dalian Exchanges w/Dr. Copper -1.37%