Daily Posts

PBOC CNY Jawboning, Trade War Market Malaise, PDD Earnings

Hope you had a great weekend!

 

Key News Overnight

  • The Commerce Department’s Huawei decision marks an escalation in the trade war as both sides appear to be digging in as talks stall. The irony is that Huawei is a good client for numerous US chip and technology clients. We’ll have to see if equity market weakness leads to an olive branch as a break below 2,800 on the S&P 500 could trigger a policy reversal.
  • PBOC Deputy Head Pan Gongsheng provided vocal support to CNY drawing a line in the sand at 7.

 


The Hang Seng declined -0.57%/-158 index points on moderate volume and mixed breath with 23 advancers and 24 decliners as the trade war weighed on China’s markets. Tencent weighed on the index -3.88%/-106 index points following last Wednesday’s earnings though Ping An Insurance -1.84%/-26 index points and Bank of China HK -5.08%/-17 index points. The HK stocks within the MSCI China All Shares -1.5% as Tencent weighed on Communications -2.99% despite strength of phone companies though healthcare was off -2.81% and trade war hit tech hard -2.47% though semis rallied as China will haver to create its own semiconductor industry as QCOM and Intel chips can’t be bought. Energy was the only sector in the green +1.41%. Discretionary was weighed down by autos -2.3%. Mainland investors were net buyers of HK stocks with ICBC seeing very strong buying and other banks generally bought as investors look for value. 

Shanghai & Shenzhen fell -0.41% and -0.75% on lackluster volumes -19% from Friday and mixed breadth of 1,334 advancers and 2,266 decliners. There was little dispersion between large, mid and small. The mainland stocks within the MSCI China All Shares lost -0.8% as “white horse” stocks were weaker with staples off -2.5% on weak food/beverage/alcohol stocks, healthcare off -1.75% and discretionary -1.46%. Financials managed a small gain of +0.12% led higher by brokers. Foreign investors were sellers overnight via Connect trading in moderate volumes as -$350mm was pulled out of stocks. The irony of course is MSCI’s inclusion rebalance is next week. 

Chinese e-commerce company Pinduoduo reported very strong Q1 revenue gains though equally impressive net income losses. The recent poor performance of strong revenue growth/net income losses (Uber, Lyft etc) may weigh on the stock which is trying to gain market share from Alibaba and JD.com.

  • Revenue +228% Year over Year (YoY) to RMB 4.545B ($677mm) versus estimate $598mm
  • Gross Merchandise Value +181% in the last 12 months RMB 557B ($83.1B) from RMB 198B YoY
  • Monthly Active Users +74% to 289mm from 166mm
  • Operating Loss RMB 2.120B ($316mm) versus RMB 253mm YoY 

  • CNY 6.91
  • Bond market rally on equity weakness.
  • Yield on 1 Day Chinese Gov’t Bond 2.25%
  • Yield on 10 Year Chinese Gov’t Bond 3.30%
  • Yield on 10 Year China Development Bank Bond 3.74%
  • Commodities were largely lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.29%