Key News

• James Lau, HK’s Secretary for Financial Services, stated that HK listed dual share class stocks would become eligible for Stock Connect beginning in July. This would allow smart phone maker Xiaomi and food delivery company Meituan Dianping to be bought by mainland investors as the stocks jumped +4.27% and +1.81% on the news.
• Hong Kong reopened following the four day holiday ending the day flat. We experienced another profit taking day in the mainland market as investors are concerned that Friday’s policy meeting marks a change in stimulus. This is an overreaction as China’s fiscal and monetary support will continue though we are not apt to see further measures as stimulus has trickled down into the real economy. We should expect a pick up in corporate earnings as companies capitalize on the improved macro environment. Ultimately the market is overdue for a consolidation after the strong Q1 performance.

The Hang Seng opened lower, managed a mid-afternoon rally that ran out of steam to close flat 0.0%/-0.02% to close below 30k at 29,963. Volumes were moderate jumping 17% versus a dull/pre-holiday Thursday though above the 1 year average. Breadth was mixed with 20 advancers and 30 decliners as AIA gained +0.75%/+22 index points while CCB lost -0.71%/-16 index points and energy giant CNOOC gained +1.49%/+12 index points. Ping An and Tencent both gained +0.74% and +0.36%. HK stocks within the MSCI China All Shares lost -0.52% with materials losing -3.16% on reports regulators are worried about cement companies having a monopoly. Real estate was weak -2.75% on the return of “homes are for living and not speculating” though several sell side reports don’t believe a major policy shift is in effect. Industrials, healthcare and discretionary underperformed as profit taking ruled the day -1.99%, -1.97% and -1.82%. Staples, utilities and energy gained +0.7%, +0.66% and +0.38% Tech and communications managed small gains. Southbound Connect volumes moderate in mixed trading as volume leader Sunac saw buyers outpace buyers while Ping An saw 10 to 1 buying and CCB 10 to 1 selling. 

Shanghai & Shenzhen were off -0.51% and -1.32% on light volumes -9% day over day though 1.5X the 1 year average as breadth was mixed with 937 advancers and 1,498 decliners. Mega cap/large caps outperformed small and mid caps by a wide margin as mega caps ended the day up slightly. Mainland stocks in the MSCI China All Shares were down -0.45% as communications lost -2.26% though the sector only has 11 stocks which was pulled down by tech’s -2.14% after disappointing results and guidance from Hangzhou Hikvision Digital. Industrials and materials were off on the cement news -1.55% and -1.28% while discretionary saw another day of profit taking -1.28%. Staples had a strong day gaining 1.3% while real estate and financials managed gains of +0.51% and +0.16% which explains the large cap outperformance. Foreign investors pulled -$967mm as Connect reopened for the first time since last Wednesday due to the Easter holiday. Volume leader Kweichow Moutai saw slight selling while Ping An had nearly 4 to 1 selling and Gree slight selling as well. 

Starbucks’ China rival Luckin Coffee filed its F-1 IPO filing with SEC yesterday for a listing on the Nasdaq exchange under ticker LK. The company reported $125mm of 2018 revenue though it lost -$241mm for the year. The loss narrowed in Q4 as revenue was $71mm and loss $82mm as the company is willing to lose money to garner market share. Investment banks on the deal are Credit Suisse, Morgan Stanley, CICC and Haitong. It will be interesting to see investors appetite for the company. 

We have an early winner to the weekly clickbait/sensationalistic/apocalyptic article contest as today’s WSJ has an “interesting” article. Titled “China’s Banks Are Running out of Dollars” the scary/clickbait headline turn out to be completely misleading. The article implies that Chinese banks have run out of US dollars as evidenced by their US dollar liabilities exceeding US dollar assets. In reading the article we quickly discover that of China’s big four banks (ICBC, CCB, Bank of China and Agriculture Bank), only one Chinese bank has more dollar liabilities than assets. The article quickly contradicts itself by stating “the other three lenders actually finished the year with more dollar assets than liabilities…”. To complete the contradiction, the article then states “The imbalance at Bank of China is small relative to its balance sheet, so it shouldn’t be seen as an imminent threat.” So the article isn’t about anything? 

CNY 6.71 versus 6.70 yesterday

• Yield on 1 Day Chinese Gov’t Bond 1.97% versus 1.86% yesterday
• Yield on 10 Year Chinese Gov’t Bond 3.41% versus 3.40% yesterday
• Yield on 10 Year China Development Bank Bond 3.82% versus 3.83% yesterday 

Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.47%