Hope all is well! 

Key News Overnight

• President Xi followed his Italy Belt & Road signing with a 300 plane deal worth $35 billion with Airbus while visiting France. The deal was larger than expected in light of recent 737 Max 8 issues.
• Premier Li reiterated core themes of opening up and leveling the playing field for foreign companies at the China Development Forum on Monday. One broker noted that markets may have anticipated a stronger message in light of recent equity weakness.
• The Ministry of Finance reported that profits of State Owned Enterprises rose 10% year over year in January and February to 452B RMB ($67B). SOE’s debt to asset ratio declined -0.3% to 64.4%. The vast majority of SOEs are not publicly traded though worth noting as we are in the thick of earnings season for Chinese stocks.
• The Boao Forum for Asia began today which should provide further reports on China’s opening up. One broker noted PBOC Governor Yi Gang was removed as a panel participant though I don’t think we can read to much into it. Maybe he is meeting with the US trade delegation in Beijing? US financial firms have been absent from announcement recent wins for foreign financial firms in China. 

The Hang Seng managed a +0.15%/+43 index points closing at 28,566 on the lowest volume in a month and below the 1 year average and -19% day over day on mixed breadth of 32 gainers and 15 decliners. Tencent declined -0.68%/-19 index points as the Naspers stake spinoff could compete with the HK stock due to its discounted to value. Energy giant CNOOC gained +2.22% /16 index points on a broker upgrade while China Mobile declined -0.8%/-12 index points in a post earnings slump. The MSCI China All Shares provides a comprehensive look at HK stocks (204 stocks) versus the Hang Seng (50 stocks). The All Shares’ HK stocks declined -0.08% though discretionary stocks gained +1.54% led by autos with staples gaining 1.32% led by noodle giant Tingyi (322 HK) despite mixed earnings. Healthcare was off -1.31% on continued concerns China’s 11 city drug procurement process may applied nationally while Tencent pulled communications down -0.61%. South Connect volumes were light as mainland investors were net buyers for the 6^th day in a row though investors took profits in volume leader real estate company Sunac (1918 HK) in 3 to 1 sellers to buyers. Tencent did see buyers outpace sellers by a small margin. 

Shanghai & Shenzhen opened higher but declined all day -1.51% and -2.18% in trading one broker called tragic as global growth fears weighed on mainland investors. Interesting that several Asian markets snapped back after Monday’s sell off though China’s pullback led to profit taking. Volumes were 2X the 1 year average though off -6% day over day as only 507 stocks advanced while 3,099 stocks declined. Within the MSCI China All Shares’ mainland stocks, communications fell -3.71%, industrials -2.35% and tech -2.3%. Small caps were off nearly -3% while mega caps were off “only” -0.5%. The Shanghai Comp closed just below 30k at 29,997 at a level of previous support. Northbound Connect volumes were light though foreign investors returned as buyers following yesterday’s selling. 

YTD Chinese internet and e-commerce companies have a had a strong start to the year. An interesting divergence is the valuation of US versus Chinese internet companies. US companies trade at a P/E ratio of 37 while their Chinese counterparts trade at a P/E of 25.7. Forward P/E of US companies is 25.9 versus their Chinese equivalents of 20.4. Time will tell how mean reversion plays out. 

Naspers (NPN SJ) is trading down -1.72% despite yesterday’s news of spinning off it non-South African investments including its Tencent stake in a NewCo listed in Amsterdam. Naspers’ market cap is less than its investment in Tencent by a mere $30B which the new listing hopes to rectify. The WSJ had a good article on why the company chose an Amsterdam listing over New York and the issues of the company being listed in South Africa. 

A local broker noted that Vice Premier Liu He has been made the head of the National Council for Social Security Fund which manages $298B for future pensioners. I’ve not seen this published elsewhere so kudos to the broker who felt this could be positive for the Fund to invest further in equities. 

Chinese peer to peer lender Yirendia (YRD US) reported Q4 earnings yesterday reporting a revenue decline of -30% YoY and net income decline of -26%. The sector is facing a shakeout due to a regulatory crackdown of shadow banking. YRD and rival QD are expected to survive and potentially benefit in the long run for the increased regulation versus smaller players. With that said, the stocks are off their all time highs by ~75% and ~85%. 

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 3.58% 

Commodities were lower on the Shanghai & Dalian Exchanges w/Dr. Copper -0.31%