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EV Subsidies Cut, Industrial Profits Fall

Hope all is well!  

Key News

  • Electric vehicle purchase subsidies will be cut between 47% to 60% based on the range of the vehicle. The lower the range the larger the cut as policymakers give a strong incentive for automakers to produce EVs with long battery life.
  • The National Bureau of Statistics reported industrial profits fell 14% year over year to 708B RMB ($105B) in January and February. As previously mentioned year over year comparisons will be difficult as tariff front running compressed twelve months of output into six to nine months. Several brokers noted that the market shrugged off the news as investors are focused on signs of China’s stimulus trickling through the economy. A rebound should be expected in late Q2 or Q3. China’s PMIs will released this weekend as investors look for potential green shoots in the economy.  

The Hang Seng grinded higher all day to end +0.56%/+161 index points to 28,738 on lighter volumes below the 1-year average though up 5% day over day with 30 advances and 16 decliners. Energy giant CNOOC gained +3.91%/30 index points on higher crude prices while Tencent gained +0.91%/26 index points on news the company is receiving a banking license in HK and insurance giant AIA +0.93%/25 index points. Within the MSCI China All Shares’ HK stocks +0.82%, real estate had a strong day +2.19% as Fed interest policy should keep HK mortgage rates low. Staples gained +1.89% with healthcare rebounding +1.64% on strong earnings reports, energy +1.5% and industrials gaining +1.23%. Discretionary dropped +0.2% as investor ponder the EV subsidy cut as BYD -2.38% on the news. One broker has stated the market overreacted as BYD produces long range vehicles which should help the company. Southbound Connect volumes were moderate though buyers outpaced sellers almost 2 to 1. Volume leader Tencent saw sellers slightly outpace buyers while real estate company Sunac saw 2 to 1 buyers. 

The Shanghai & Shenzhen gained +0.85% and +0.9% on lighter volume though still 2X the 1 year average and -13% day over day in mixed breadth as advancers outpaced decliners by a slim margin. Mainland investors noted President Trump’s comments on an “excellent” trade deal as US delegates meet tomorrow in Beijing. Within the MSCI China All Shares’ mainland stocks +0.97%, as healthcare rebounded +2.82%, staples +2.4%, real estate +1.61% and discretionary +1.02% led by liquor names. Utilities lagged -0.79% on higher fuel costs while tech and communications lagged -0.46% and -0.17% as brokers will test trading on the new Science & Technology board this Monday. News is just hitting that Shanghai will evaluate eight additional companies for IPOs in addition to nine approved companies. Mega caps had a strong day with brokers outperforming. Northbound Connect volumes were light with buyers barely outpacing sellers. 

Online gaming company Kingsoft (3888 HK) jumped +12.5% as earnings beat analyst expectations. 

China’s big four banks will report earnings this week with China Construction Bank coming today though not out yet. 

CNY 6.72

  • Yield on 1 Day Chinese Gov’t Bond 1.8%
  • Yield on 10 Year Chinese Gov’t Bond 3.12%
  • Yield on 10 Year China Development Bank Bond 3.59% .

    Commodities were mixed with metals firmer on the Shanghai & Dalian Exchanges w/Dr. Copper +0.25%