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Market Rebound on PBOC Liquidity Injection & SOE Profit Release, Number of Mainland investors reaches 150mm, Q1 GDP/March Retail Sales, FAI & IP Tonight 10pm EST

Hope all is well! 

Key News Overnight

  • China & HK opened weaker but turned higher as the PBOC conducted a reverse repo injecting RMB 40B for the first time in recent memory. There was also rumors of a bank reserve requirement ratio cut which would increase lending to private companies. There is some debate that loose fiscal and monetary policies will be curtailed based on the recent “green shoots”. Even with tonight’s data release it feels premature to pivot at this juncture.
  • Central SOEs reported Q1 profits of RMB 426.5 billion (~$63.6 billion) up 13.1% year over year. March profits increased 10.8% year over year to RMB 188.28B. This data encompasses many more private than publicly traded SOEs. The strong earnings rebound is another “green shoot” and a catalyst for the market turnaround last night.
  • Mainland new home prices increased +0.61% versus Feb’s +0.53%. Remember housing is the primary store of wealth in China. The positive move has a positive effect on investor sentiment.
  • Tonight at 10pm EST Q1 GDP, March retail sales, fixed asset investment and industrial production will be released.
  • We will be ringing the closing bell today at the NYSE. I will be sure to wave if on the podium.
  • There was some yesterday confusion based on a Friday night release from MSCI delaying the merger of the All China index with the China All Shares. This decision has nothing to do with the MSCI China A Inclusion.

 


The Hang Seng opened -0.33% and hit an intra-day low -0.33% but rebounded on the PBOC injection and SOE profits to end +1.07%/+319 index points to close above 30k at 30,129. Breadth was mixed with 28 advancers and 20 decliners as volumes declined 5% day over day though slightly ahead of the 1 year average. Financials led the index higher following China Life’s strong results +3.07% with CCB +3.91%/+91 index points, Tencent +1.39%/+43 index points and ICBC +3.08%/+41 index points. The HK stocks in the MSCI China All Shares gained +1.04% led by financials +2.56%, communications +1.16% led by Tencent, healthcare +0.91%. Real estate was off -0.95% while industrials were off -0.41%. Tech was off -0.06% as Sunny Optical was off -2.42% was cut to a sell from hold by Haitong International. Southbound Connect flows were elevated with buyers outpacing sellers. Volume leader CCB saw slightly selling similar to Sunac while Ping An saw very strong buying. 

Shanghai & Shenzhen reversed early losses to gain +2.39% and +2.09% on strong breadth and slightly higher volume day over day. Mega caps outperformed mid and small caps due to the strength of financials. The mainland stocks with the MSCI China All Shares gained +2.5% as financials gained +3.63%, communications +3.11%, tech +2.85%, materials +2.21% and staples +2.18%. Northbound Connect volumes were high was foreign investors bought a net $511m of mainland stocks after selling -$339mm Monday. Foreign investors had been allocating heavily to the mainland market were net sellers for the previous seven trading days. Volume leader Ping An did see slightly selling though Kweichow Moutai saw buyers outpacing sellers as the banks were largely bought. 

Overnight it was reported that the number of mainland investors reached 150mm up 2mm in the month of March. Mainland investors having equities in 2018 due to concerns of a trade war are returning to stocks in 2019. According to Bloomberg data, mainland investors have $1.3 trillion invested in money market funds, $273B in fixed income funds and just $102B in equity mutual funds and another $43B in ETFs. For comparative purposes US investors have $9.9 trillion in equity mutual funds and 4.51 trillion in fixed income mutual funds. Chinese savers are conservative as they are largely responsible for their retirement and healthcare. Last night’s housing news could exacerbate a shift back into risk assets ie equities. 

Mercedes Benz China will issuing an auto loan ABS next week. 

CNY 6.70

  • Yield on 1 Day Chinese Gov’t Bond 2.27%
  • Yield on 10 Year Chinese Gov’t Bond 3.38%
  • Yield on 10 Year China Development Bank Bond 3.86%


Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper losing -0.24%Market Rebound on PBOC Liquidity Injection & SOE Profit Release, Number of Mainland investors reache