Daily Posts

Nintendo Surges on Tencent Partnership, New Round of SOE reforms, Mainland Market Moves Higher, (Please Don’t Read – Enjoy Your Day with Family & Friends!)

TGIGF! Happy Easter and Passover! 

Key Overnight News

  • Nintendo surged 14% in Tokyo following the after the close Tencent partnership announcement on distributing the Switch game console in China. Tencent’s unsponsored US listed ADR (TCEHY) only gained 0.2% though brokers are anticipating a strong open for Tencent’s HK listing.
  • The National Development and Reform Commission, the body that governs SOEs, announced a new round of mixed ownership reforms for 100 SOEs. This is the fourth round of SOEs included in allowing private capital to take ownership in the firms. Other reforms include giving company boards more control as the NDRC wants to make the companies more efficient and profitable. SOEs deliver profits and/or dividends to the state which therefore has a strong incentive to make these companies more effective. The vast majority of SOEs are non-publicly traded companies though these reforms can have a strong positive effect on publicly traded companies. At this point we don’t know which 100 companies are to be included. 

HK Closed 

Shanghai & Shenzhen had a choppy morning followed by a late afternoon rally gaining +0.63% and +0.94% on volumes off -4% day over day though 1.5X higher than the one average. Breadth was mixed with advancers outpacing decliners nearly 2 to 1 on the Shanghai though there were more decliners than advancers on the Shenzhen. Mega/large cap stocks outperformed small/midcaps despite SZ outperforming the SH. Mainland stocks within the MSCI China All Shares gained +0.86% led by appliance giant Gree’s 9.24% gain following yesterday’s news of energy efficient home appliances receiving subsidies. Communications had a strong day gaining +1.61% as did financials +1.36%, energy +1.28% led by coal stocks and real estate +1.17%. Materials lagged the market off -0.11%. The Terry Guo trade fell to profit taking as the Foxconn founder’s run to be Taiwan’s President caused a big run up in Taiwanese related stocks. Northbound Connect trading was closed due to HK’s holiday. 

There are multiple reports that Amazon is looking to offload its China online effort to NetEase’s e-commerce unit Kaola. Competing against established ecosystems from Alibaba, and more recently Pinduoduo proved to difficult even for a strong company and brand like Amazon. Amazon joins a long list of foreign brands that attempted to go alone such as Uber, Ebay and China’s established ecosystems keep eyeballs from leaving. 

The Week Ahead:

  • President Xi will speak at next week’s Belt and Road Forum for International Cooperation.
  • Industrial Profits to be released; light week on economic releases
  • We are starting to get Q1 earning announcement dates from US listed Chinese companies as Baidu announced their earnings release on May 16th. These companies are trading at a steep discount to their US equivalents. Strong earnings could help close the gap. 

CNY 6.70 versus 6.70 yesterday

  • Yield on 1 Day Chinese Gov’t Bond 1.96% versus 2.31% yesterday
  • Yield on 10 Year Chinese Gov’t Bond 3.39% versus 3.37% yesterday
  • Yield on 10 Year China Development Bank Bond 3.81% versus 3.8% yesterday

Commodities were higher on the Shanghai & Dalian Exchanges with Dr. Copper +0.26%