Hope you had a great weekend! 

Key News Overnight

• Foreign Reserves rose to $3.098 trillion versus estimate $3.090 trillion and Feb’s $3.090 trillion; markets are intrigued by the pick-up in gold reserves from 60.26 million ounces to 60.62mm
• US China trade talks are “closer and closer” according to Larry Kudlow’s appearance on the Sunday morning talk show circuit
• Further support for small medium enterprises is coming based on a press release overnight from policy makers. Addressing SMEs challenges such as “rising costs, financing difficulties and inadequate innovation capability” by streamlining regulations and providing further access to credit.  Hang Seng overcame a mid-day swoon to close +0.47%/+140 index points at 30,077 on strong volumes above the 1 year average with mixed breadth of 6 advancers and 19 decliners. The index closed above the 30,000 level for the first time since June 2019. Tencent led the index higher gaining +1.12%/34 index points followed by Ping An Insurance 1.86%/29 index points and energy giant CNOOC +3.47%/27 index points. Sunny Optical popped +4.37%/9 index points after reporting earnings that was mixed versus analyst expectations. The HK stocks within the MSCI China All Shares gained by healthcare +2.91% led by Sino Biopharma’s 7% gain after a HSBC upgrade. Materials had a strong day +2.82% after mainland authorities closed a chemical/industrial park following a major explosion two weeks ago and firmer cement prices. Real estate jumped +1.87% after China Merchants Land reported strong Q1 sales. Energy gained +1.77% led by CNOOC. Southbound Connect volumes were elevated with buyers slightly outpacing sellers. Volume leader CCB was sold down 3 to 2 though pork giant WH Group saw outsized buying.

Shanghai & Shenzhen opened higher but eased on profit taking in the afternoon session (the exchanges like Hong Kong close for lunch) to close -0.05% and -0.55% on volumes well 2.5X the 1 year average and above the 1 trillion CNY accompanied by lower breadth with 2 to 1 decliners. Mega cap/large caps vastly outperformed small caps on the day. The mainland stocks within the MSCI China All Shares eased -0.08%. Materials were a standout winner +3.5% due to the industrial park closure will shift business to other companies in the sector and potentially raise prices. Staples had a strong day +1.39% led by MSCI Inclusion stock Kweichow Moutai reaching an all-time high. Interesting that China’s favorite drink is considered a staple and not discretionary. The good news ends there as communications and tech were off -2.53% and -2.32% in what brokers described as profit taking. Foreign investors were in the profit taking mood as Northbound Connect volumes were very higher with sellers slightly outpacing buyers. Volume leader Kweichow Moutai did see buyers slightly outpace sellers while #2 on the volume charts Ping An Insurance also saw buyers outpace sellers. 

Last week we noted Tencent and China Construction Bank’s partnering on a technology deal. My colleague Bill made a great point that we had heard about these types of deals between tech/innovative companies and big state owned enterprises a year and half ago. In October    2017 the WSJ wrote an article about the Chinese government buying stakes in Chinese internet and e-commerce companies (Beijing Pushes for a Direct Hand in China’s Big Tech Firms, Oct 11, 2017). We happened to have the Chairman of Shenzhen based Bosera Asset Management, the mutual fund arm of China Merchants Bank, in NYC the week the article was published. When asked his thoughts on the article, he stated the article was completely wrong. The objective of the government not for state owned enterprises to own stakes in innovative companies such as Tencent, Alibaba and others but to buy and incorporate the technologies that made them so successful. The Chairman believed that this would be a very good thing for the Chinese technology companies as they would gain a long list of potential clients. Both Tencent and Alibaba’s cloud computing businesses are growing rapidly providing an indication that many companies are leveraging their technologies. 

CNY 6.71

• Yield on 1 Day Chinese Gov’t Bond 1.2%
• Yield on 10 Year Chinese Gov’t Bond 3.27%
• Yield on 10 Year China Development Bank Bond 3.75%

Commodities were higher on the Shanghai & Dalian Exchanges though Dr. Copper off -0.42%