• Asian equity markets were weak as the US broadens the scope beyond Huawei to surveillance companies as well. It is worth noting this is solely driven by a New York Times article though it is difficult to find confirmation elsewhere. Clearly the story is a planned leak though I do believe it is worth noting the escalation is driven by one news article. The increased hard line rhetoric weighed on HK and mainland markets as tech companies are taking the brunt of investor ire. Japan’s weak PMI followed by weak European PMIs didn’t help market sentiment.
• Tencent was off -3.83% on the highest volumes YTD. The easy explanation would be it is a tech company but the company is not a semis nor a software company. Overnight brokers noted that there was a large seller in the market. This is speculation on my part but was the trading driven by Tuesday’s MSCI at the close rebalance? If I need to buy Chinese A shares at the close Tuesday, I need to sell other markets including HK to fund the trade. I would have had to sell today in order to have the cash available on Tuesday (trade date today plus 2 days equals Tuesday). Pure speculation on my part but as the largest company in EM Tencent would see the most selling pressure in the short run.

The Hang Seng had a rough day falling -1.58%/-438 index points on moderate volume at the 1 year average with only eight advancers and 41 decliners. The only positive would be volumes were off and Tencent accounted for nearly 25% of the HIS’s move off -3.83%/-100 index points. Bank of China was off -7.26% though it went ex-dividend which my Bloomberg terminal doesn’t appear to be taking into account. AIA was off -1.51%/-41 index points though Apple suppliers AAC and Sunny Optical were hit hard -6.36% and -7.68%. The HK stocks within the MSCI China All Shares fell -1.95% led by tech -3.98%, communications -3.19% led by Tencent, discretionary off -2.92% with autos weaker, healthcare -2.47% and materials -2.35%. Utilities and staples managed gains of 0.38% and 0.06%. Mainland investors were small sellers of HK stocks in Southbound Connect trading.

Shanghai & Shenzhen were off -1.36% and -2.43% on moderate volumes just above the 1 year average though breadth was very weak with only 378 advancers and 3,246 decliners. Mega caps slightly outperformed mid and small caps by a small margin as brokers had a strong day on increased positive news around the new Shanghai Science and Technology Board. Mainland stocks within the MSCI China All Shares Index were off -1.9% led lower by tech -3.65% as Huawei suppliers were hit hard, staples -3.18%, discretionary -2.71%, healthcare -2.49%, communications -2.44% and real estate -1.94%. Utilities, energy and financials “outperformed” with losses of less than 1%. Foreign investors sold $594mm mainland shares with surveillance companies Hikvision and Wuliangye experiencing selling pressure. A mainland broker aptly called today’s trading a “tragic” day. The Shanghai and Shenzhen have not broken support though sitting close to technical areas.

A media noted that JP Morgan Asset Management is launching a smart beta index with mainland index provider China Securities Index Company. I would suspect an ETF is in the works with a HK or mainland launch coming. JP is in the process of buying out their JV partners to become the first US asset manager operating in China.

Online discounter Vipshop reported Q1 earnings after US close yesterday.

• Revenue +7.3% YoY to RMB 21.3b ($3.2B) versus estimate $2.97B and Q1 2018 RMB 19.9B
• Gross merchandise sold +11% to RMB 33.8 from 30.5B YoY
• Active customers +14% to 29.7mm from 26mm YoY
• Adjusted EPS $0.18 versus estimate $0.16 and
• Q2 Revenue forecast between 0% and 5% growth (we were doing so well until we got here. Surprising they are being so conservative as the VAT cut should help.)
• CNY 6.90 versus 6.90 yesterday

Online travel company Ctrip reported strong Q1 earnings post US close.

• Revenue +21.% YoY RMB 8.2B ($1.2B) versus estimate RMB 8.07b
• Net Income attributable to shareholders RMB 4.6B ($687mm) versus RMB 1.1B YoY
• Adjusted EPS RMB 2.90 versus estimate RMB 1.65
• Gross margin 79% versus 82% YoY
• Q2 Revenue estimate 16% to 21% versus estimate 19%

Meituan Dianping reported Q1 earnings after the HK close. Top line growth looks solid though the bottom line losses grow as the company looks to grow market share.

• Revenue increased 70.1% YoY to RMB 19.2B from 11.3B versus estimate RMB 18.25B
• Gross transaction volume +27.9% to RMB 138B from 108B YoY
• Operating loss RMB 1.3B from RM 21B YoY
• Adjusted loss RMB 1.04B from RMB 980mm YoY

Weibo reported Q1 earnings this morning pre-US market. Interesting that revenue is called a “miss” though forecast is likely the concern as the stock is off pre-market as increased competition for ad dollars is effecting several companies in the space.

• Revenue +14% to $399.2mm from $349.9mm YoY versus estimate $399.6mm
• Average daily users 203mm
• Adjusted EPS $0.56 up from $0.50 versus estimate $0.53
• Q2 Revenue forecast +7 % to 10% $427mm to $437mm versus estimate $481mm

• CNY 6.91 versus 6.90 yesterday
• Yield on 1 Day Chinese Gov’t Bond 2.02% versus 2.12% yesterday
• Yield on 10 Year Chinese Gov’t Bond 3.33% versus 3.34% yesterday
• Yield on 10 Year China Development Bank Bond 3.75% versus 3.77% yesterday
• Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -1.27%