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April CPI/PPI/Aggregate Financing/M1/M2/New Loans Data Release, Trade Talks Weigh on Markets

Hope all is well!

  • CPI: 2.5% versus estimate 2.5% and March’s 2.3%
  • PPI: 0.9% versus estimate 0.6% and March’s 0.4%
  • Aggregate Financing:1.360 trillion versus estimate 1.65 trillion and March’s 2.859 trillion (revised)
  • New Loans: 1.030 trillion versus estimate 1.2 trillion and March’s 1.69 trillion
  • M1: 2.9% versus estimate 4.3% and March’s 4.6%
  • M2: 8.5% versus estimate 8.5% and March’s 8.6% 


Takeaway:
While PPI and CPI came in near expectations, the money supply and loan data was released a day early than anticipated. Markets had opened lower but were coming off their lows when the second set of data was released leading to a bond rally, CNY weakness and equity drop as credit expansion came in lighter than anticipated. The month over month comparison was going to be difficult due to a light February shortened by the New Year holiday which caused a sharp rise in March. Policy makers tweaked policy in April having implemented the VAT tax cut on April 1st while easing on credit growth. Shadow banking continued its decline in April having been identified as a potential liability. Policy makers have plenty of dry powder to support the economy if necessary as quality growth is favored over unhealthy/debt driven growth. Overall trade was the dominant theme overnight as concerns arise about new tariffs being implemented. 

Key News Overnight

  • Trump’s Florida speech garnered much attention though it likely should be discounted as a campaign rally. The timing of the tariff garnered attention in Asia as it was on the 20th anniversary of the US accidently bombing China’s embassy in Belgrade killing three Chinese. Asia was a sea of red with export heavy Korea dropping -3% though one broker noted tomorrow’s options expiration was likely a factor. Northbound Connect saw foreigner selling though Monday is a market holiday in HK with Connect closed tomorrow leading to a front loading of sales. 


The Hang Seng had a rough day dropping -2.39%/-692 index points as trade and lighter than anticipated credit growth weighed on markets. Volumes rose 13% day over day while only 3 stocks advanced and 46 declined. AIA fell -3.24%/-96 index points while Tencent gave back early gains to fall -2.39%/-72 index points and CCB fell -3.16%/-66 index points. The HK stocks within the MSCI China All Shares fell -2.51% as healthcare declined -4.08%, discretionary -3.39%, tech -3.27%, real estate -3.09% and financials -2.99%. Even utilities fell -1.26% as there was no place to hide in the broad sell off. Geely Auto was off -5.99% on light April car sales which weighed on autos in discretionary. Pork processor WH Group was weak -5.8% though it is a HK domiciled company and not in MSCI China nor All Shares. Southbound Connect volumes were moderate in mixed trading though sellers outpaced buyers as ICBC saw 2 to 1 buyers while Tencent saw 2 to 1 sellers in Shanghai Connect trading. Tencent did see more buyers in an interesting divergence in Shenzhen Connect trading. 

Shanghai & Shenzhen declined -1.48% and -1.28% on light volumes down -11% day over day in mixed breadth 1,449 advancers and 2,069 decliners. Small/mid caps held up better than their mega/large cap by ~1%. The disparity can be seen in several mega dominated sectors within the mainland stocks held by the MSCI China All Shares which declined -2.55% as healthcare -3.78%, staples -3.43% on beverage weakness, real estate -2.78%, financials -2.74% and communications -2.29%. Northbound Connect saw foreigners selling -$832mm of mainland stocks with volume leader Kweichow Moutai experiencing nearly 2 to 1 selling and Ping An off in Shanghai Connect trading. Shenzhen Connect also saw selling but slower pace. 

I can’t help but notice the growth divergence between the US and global equity markets over the last month with the former flat while Asia less Japan is down markedly. This has created a valuation disparity.

  • P/E and Forward P/E
  • S&P 500: 18.84/17.3
  • Shanghai Comp 13.79/10.97 .

Subtracting the P/E of the Shanghai from the S&P over the last twenty years, the average difference is 6.94. Today it is -5 which is near the all time low of -8 reached in 2014. 

Subtracting the P/B of the Shanghai to the S&P over the last twenty years, the average is -0.2 while today is -1.9 which is almost the all time low of -2 in Sept 2018.

Comparing US versus Chinese internet and e-commerce companies also shows a wide disparity with the former trading at a P/E of 37 versus the latter of 25.5 with forward P/Es of 26.5 versus 20.4.

CNY 6.82 versus 6.77 yesterday

Bond prices firm slightly on equity weakness

  • Yield on 1 Day Chinese Gov’t Bond 1.52% versus 1.32% yesterday
  • Yield on 10 Year Chinese Gov’t Bond 3.36% Tuesday versus 3.36% yesterday
  • Yield on 10 Year China Development Bank Bond 3.71% Tuesday versus 3.75% yesterday


Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.58%