Daily Posts

China Pulls the Band Aid on Foreign Financial Firms in China, Trade Deal Next Week?

I have a regional day trip tomorrow. I am unsure if I’ll be able to get China Overnight tomorrow. 

Key News

  • The China Banking and Insurance Regulatory Commission reported that limitations on foreign banks and insurance companies operating in China via joint venture or independently will be removed. In a nut shell, China’s $44 trillion financial market is being opened to foreign companies. It is rare for China to take a pull the band aid approach to reforms as incremental and pragmatic is the typical approach. One should assume this was driven by a trade deal as the twelve rules level the playing field for foreign firms. HK listed financial had a decent day on the news as they could become M&A targets for foreign firms looking to buy market share versus build it.
  • Politico ran an article yesterday stating that the roll back of $250B in tariffs was in the works with an announcement possible as early as next week when China’s trade team meets back in DC. US market reaction: yawn. Overnight CNBC reported that an announcement could be made next Friday. One broker noted that China’s trade envoy next week in DC will number over 100 attendees.  


The Hang Seng overcame an off day in the US driven by the Fed by grinding higher all day as investors cheered positive news on trade and financial opening up to close +0.83%/+245 index points just below 30k at 29,944. Market breadth was positive with 31 advancers and 17 decliners with volume well below the 1 year average as the majority of Asia less Japan reopened from May 1/Labor Day holiday. It was the lowest volume day since Feb 4
th which was the day before the Chinese New Year holiday as many investors took the whole week off. 50% of the Hang Seng was driven higher by AIA +4.13%/+124 index points as the company could become a takeover target. Tencent jumped +0.88%/+27 index points while HSBC gained +0.81%/+24 index points. Apple suppliers AAC and Sunny Optical gained +3.06% and +0.99% on the company’s positive outlook. HK stocks within the MSCI China All Shares gained +0.31% as AIA is a HK domiciled company so it isn’t considered a Chinese company. If that makes no sense to you, you are in good company. Staples had a strong day gaining +2.58% driven higher by beverage names especially Tsingtao Brewery post strong earnings and sell side upgrades. Utilities had a strong day gaining +1.26% on lower energy prices which hurt energy -1.14%. Discretionary had an off day -1.1% on auto weakness while materials declined -1.03%. South bound Stock Connect is still closed.

Shanghai & Shenzhen remain closed today and will be tomorrow as well.

Macau casino revenue declined -8.3% year over year in April. The market will be more interested in this week’s numbers.

US MNC earnings in China:

  • Qualcomm reported a Q2 2019 revenue decline of 5% year over year and faces headwinds in mobile phone chip sales in the short run. While the company does not break out geographic sales it is highly dependent on smart phone makers in China and broader Asia. The company did report China’s 5G adoption should provide a boost in future quarters.
  • Mastercard reported earnings rose 13% with China representing 14% of revenue which is growing at “high double digits” though the company has had difficulty cracking China’s regulatory approval process for full business approval in China.
  • Water treatment and heating company AO Smith reported weakness in China which represents 32% of revenue which declined 5% in total and 18% in China. While water treatment was a highlight, the company expects a weak first half in China with a better second half and long term prospects.


Ministry of Human Resources and Social Security has reduced the amount companies pay into the national pension plan on behalf of employees. The pension premium has been reduced from 19%/20% to 16% in a stimulus measure for corporations though especially beneficial for small companies.

CNY 6.73 versus 6.73 yesterday

  • Yield on 1 Day Chinese Gov’t Bond 1.92% Tuesday versus 1.92% Monday
  • Yield on 10 Year Chinese Gov’t Bond 3.43% Tuesday versus 3.44% Monday
  • Yield on 10 Year China Development Bank Bond 3.81% Tuesday versus 3.84% Monday


 

Commodities were higher on the Shanghai & Dalian Exchanges with Dr. Copper +0.08% on Tuesday