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March Service PMI Surges, Altaba Liquidation, Tencent Receives Gaming Approvals

Hope all is well! I am headed home tomorrow which is great though unfortunately it means no note tomorrow. Apologies! 

Caixin China PMI Services 54.4 versus estimate 52.3 and Feb’s 51.1
Caixin China PMI Composite 52.9 versus Feb’s 50.7

Takeaway: Private firm IHS Markit releases global PMIs. Here are the headlines on IHS Markit’s website on today’s PMI releases: Japan “economy near stagnation amid manufacturing downturn”, UK “economy stalling” while China’s “strongest upturn since mid-2018”. Today’s PMI is the second “green shoot” following Monday’s official PMIs. The week of the 15th will see multiple economic releases that will confirm if China’s stimulus has made its way into the real economy. Markets are reacting positively to the news as most anticipated a 2nd half of 2019 recovery. As investors we want to focus on where China’s economy is performing the strongest. Clearly the service sector, driven by consumption, is the strongest segment of China’s economy.  

Key News

  • Altaba, which held Alibaba’s shares following the Yahoo and Verizon merger, has received board approval to selling its Alibaba shares and disbursing the proceeds to shareholders. Altibaba owns 283mm shares/10.96% of Alibaba shares. I would suspect that Alibaba would try to buy all or some of the shares as selling them on the open market would be an arduous task and somewhat self defeating. I am sure brokers could arrange blocks but that’s a huge stake as it is 4X BlackRock’s holdings. BABA is selling down slightly on the news.
  • Tencent received approvals of several games including Game of Thrones: Winter is Coming. The lack of online game approval had weighed heavily on the stocks in 2018 though the stock bottomed in late October and has picked up as the regulators appear to be pivoting toward allowing more games.
  • China’s trade envoy arrives in Washington DC today. There is chatter that this is the final push to get a deal done.  


Hang Seng had a strong day gaining +1.22%/+361 index points to close at 29,986 on strong volumes above the 1 year average and 13.5% higher day over day. Breadth was strong 43 advancers and just 6 decliners though Tencent was the story of the day gaining +3.28%/99 index points and accounting for nearly 1/3 of the indice’s return. It was a broad rally with HSBC and Ping An gaining +1.45%/42 index points and +2.59%/39 index points. Markets shrugged early morning news the National Social Security Fund selling downs its stake in Bank of Communications -0.46% as the PMIs released was a surprise to the upside buoyed by the Tencent gaming news. Within the MSCI China All Shares’ HK stocks +1.58%, unsurprisingly the communications sector gained 2.78% led by Tencent, discretionary had a strong day led by autos gaining 2.29%, staples led by food & beverage favorites 1.9% as only utilities was in the red -0.36%. Southbound Connect volumes were elevated with buyers outpacing sellers with volume leader Tencent seeing 2 to 1 buying. 

The Shanghai & Shenzhen overcame morning losses driven by news of Bank of Communications were then overshadowed by the strong Service PMI to gain 1.24% and +0.82% on volumes still 2X the 1 year average though off 10% day over day. Breadth was positive though mixed. Within the MSCI China All Shares’ mainland stocks +1.32%, led higher by industrials +2.24% as shipping companies had a very strong day. I can only suspect they would benefit from a trade war conclusion? Discretionary was up 1.91% led by food and beverage stocks as China’s VAT cut could mean more money spent by consumers. Financials gained 1.91% as increased stock market activity helps them overcome an abysmal 2018 but also chatter that corporate refinancing rules would be loosened. All sectors ended in the green today. Northbound Connect volumes were strong as buyers outpaced sellers. 

Former Goldman Sachs President and Director of the National Economic Council Gary Cohn’s podcast on Freakonomics is garnering some attention due to his belief President Trump is “desperate” for a trade deal. I’ve not listened to but read a review of it in which he disparage Peter Navarro and Wilbur Ross. Commodities were mixed on the Shanghai & Dalian Exchanges w/Dr. Copper off -0.06%

CNY 6.70

  • Yield on 1 Day Chinese Gov’t Bond 1.19%
  • Yield on 10 Year Chinese Gov’t Bond 3.24%
  • Yield on 10 Year China Development Bank Bond 3.74%

 


Commodities were mixed on the Shanghai & Dalian Exchanges w/Dr. Copper off -0.06%