MSCI Semi Annual Rebalance May Pro Forma, HK/Connect Play Catch Up (Down), Tencent Music Entertainment/BILI Earnings
Greetings from Beijing! My flight was delayed seven hours on Sunday so my Beijing arrival was much later than anticipated and thus no China Last Night yesterday.
- China responded to US tariff increase from 10% to 25% on $200B of Chinese made goods by raising their tariff on 5,140 US made goods from 10% to 25%/20%/10% or 5% on $60B of US imports. The US has threatened imposing tariffs on the remaining $300B. Trump and Xi are expected to meet at the G-20 summit though that isn’t until the end of June.
- Hong Kong reopened following Monday’s holiday for Buddha’s birthday while Stock Connect reopened for the first time since last Thursday. Both HK and Connect flows played catch up to the downside as foreign selling in Northbound Connect was an all time high of $1.58B of mainland stocks sold.
The Hang Seng opened lower -2.1% though managed to close above 28k falling -1.5%/-428 index points to close at 28,122. Turnover was elevated/above the 1 year average with 10 advancers and 36 decliners. Tencent fell -2.98%/-88.7 index points despite their recent new game approval while AIA -2.89%/-79.3 index points and CCB -2.16%/-44.5% in the broad sell off. The HK stocks within the MSCI China All Shares declined -2.07% led lower by tech -3.36%, discretionary -2.76% on auto weakness after April China auto sales fell 16.9% YoY, real estate -2.5%, Tencent dragged communications -2.4% and staples off -1.95%.
The Shanghai & Shenzhen were off -0.69% and -0.62% on volumes above the 1 year average though by a small amount. Breadth was weak with 1,103 gainers and 2,420 decliners as small caps underperformed large caps. Mainland stocks within the MSCI China All Shares declined -0.81% led lower by healthcare -1.16%, industrials -1.09% and real estate -0.96%. Communications slipped -0.39% as it “outperformed”. Foreign investors had the first opportunity since last Thursday to trade mainland stocks leading sales of $1.58B, the most ever in Connect history.
MSCI May Pro Forma was released last night. The weight increase of China A shares in the MSCI Emerging Markets Indexes will be implemented according to the following schedule:
- Increase the Index Inclusion Factor of all China A Large Cap shares in the MSCI Emerging Markets Indexes from 0.05 to 0.10 and add ChiNext Large Cap shares with a 0.10 inclusion factor coinciding at the May 2019 SAIR.
- Increase the inclusion factor of all China A Large Cap shares, including the ChiNext Large Cap shares, in the MSCI Emerging Markets Indexes from 0.10 to 0.15 at the August 2019 QIR.
- Increase the inclusion factor of all China A Large Cap shares, including the ChiNext Large Cap shares, in the MSCI Emerging Markets Indexes from 0.15 to 0.20 and add China A Mid Cap shares, including eligible ChiNext Mid Cap shares, with a 0.20 inclusion factor at the November 2019 SAIR
MSCI China Index Proforma is now 496 stocks based on 31 additions (of which are 18 Chinext large cap stocks) and 4 deletions up. This raises the number of Chinese up from 469 stocks (all of EM is 1,202 stocks) while China will account for 33.5% of EM. MSCI China All Shares had 66 additions and 10 deletions to raise the number of stocks to 639.
Tencent Music Entertainment reported Q1 earnings after Monday’s US close.
- Revenues +39.4% YoY RMB 5.74B ($855mm) versus estimate 5.8B
- Operating profit +22.9% YoY RMB 1.15 ($171mm)
- Net Profit +17.4% YoY RMB 987mm ($147mm)
- Monthly music users – 654mm
- Paying monthly music users – 28.4mm
- Monthly social entertainment users – 225mm
- Paying monthly social entertainment users – 10.8mm
- Corporate cash $2.7B
Online broadcaster Bilibili beat muted analyst expectations in their Q1 results.
- Revenues +58% YoY RMB 1.373B ($204mm)
- Net Loss RMB 195mm ($29mm)
- Monthly users reached 101mm +31% YoY
- Mobile monthly users reached 88.6mm +39% YoY
- Paying Users increased 132% YoY to 5.7mm
CNY 6.88 versus 6.82 Friday
- Yield on 1 Day Chinese Gov’t Bond 1.57% versus 1.52% Friday
- Yield on 10 Year Chinese Gov’t Bond 3.35% Tuesday versus 3.349% Friday
- Yield on 10 Year China Development Bank Bond 3.74% Tuesday versus 3.73% Friday
Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.44%