Hope all is well! 

Key News Overnight

• Another quiet night as the US’ market action dragged most of Asia lower led by tech due to trade war escalation concerns though Mueller, Iran and Brexit are additional market concerns. Korea promptly rebounded +0.77% after I mentioned its poor performance yesterday. Tencent managed +0.75% gain counter to the broader market weakness. Banks held up as a broker mentioned the PBOC said they were handling risks in the banking system well. Commitment to continued reforms were a major focus as policy makers met. The S&P 500 closed below 2,800 as some technicians are noting a head and shoulder formation. The technicians would expect a rally and then failure for the bearish signal to complete. One has to wonder the resolve of trade hardliners in the face of US equity market weakness.
• Late tonight China will release the Manufacturing and Non-Manufacturing PMIs. Estimates for the former are 49.9 versus April’s 50.1 while for the latter are 54.3 versus April’s 54.3. The Manufacturing PMI will receive media attention as commodity prices tend to move on the release. Despite the service sector now accounting for over 50% of China’s GDP the Non-Manufacturing PMI will receive no attention unless it is a poor number. Unfortunately I have an early morning flight home so I’ll be unable to comment on it.

The Hang Seng declined -0.44%/-120 on weak volume -8% day over day and 20% the 1 year average as fifteen stocks advanced and thirty four declined. The index closed at 27,114 as 27k is viewed as short term support and 26,500 the next support level. AIA led the index lower -2.15%/-58.6 index points though Tencent gained +0.75%/+19.4 index points and China Construction Bank (CCB) +0.81%/+16.4 index points and ICBC +1.27%/+15.7 index points. Remember AIA isn’t considered a stock due to its HK domicile so it is interesting to note the HK stocks within the MSCI China All Shares gained +0.40% due to index heavy financials +0.78% and Tencent pulling communications +0.63%. Utilities had a strong day +1.5%, industrials +0.63% and energy +0.83% after comments that China should become more energy self-sufficient. Discretionary was lower -1.31% by Anta Sports and mixed trading in autos, healthcare -1.23% and tech -1.02% led lower by ZTE and Apple suppliers AAC and Sunny Optical. Southbound Connect volumes were light though volume leaders CCB, ICBC and Tencent all saw buyers. 

Shanghai and Shenzhen declined -0.31% and -0.62% on weak volumes just above the 1 year average while 779 stocks advanced and 2,816 declined. Trade war concerns continue to weigh on sentiment in advance of the PMI release. Mega and large caps “outperformed” mid and small caps slightly. The mainland stocks within the MSCI China All Shares declined -0.46% led lower by tech’s -1.05% decline while discretionary eased -0.87% and healthcare -0.81%. Utilities, energy and staples gained +1.28%, +1.18% and +0.14%. Northbound Connect volumes were light as Shanghai Connect saw net buying by foreigners though Shenzhen Connect saw net selling as foreign investors lighten up on tech plays. Overall foreign investors sold $114mm of mainland stocks. I did not notice a US listed Chinese A shares ETF lost $223mm in AUM which is reported on a day lag. 

Hedge fund Blue Orca named Anta Sports (2020 HK) a short sale due to accounting irregularities at the HK Ira Sohn conference today. The stock fell -12.88% though managed to rebound to close down –5.53% on volumes 5X yesterday’s volume. Anta might not be a familiar name to US investors though it is a popular sportswear company in China. I would consider this a fairly bold call as it is a popular stock. Mainland investors were buyers of the stock 6 to 1 versus sellers in Southbound Connect volumes. 

A media source noted China plans on planting 670,000 hectares of soybeans this year. China imported 95.5mm tons of soybeans last year. While the trade war wasn’t specifically mentioned it is hard not to understand why this is occurring.  

• CNY 6.90 versus 6.90 yesterday
• Yield on 1 Day Chinese Gov’t Bond 1.71% versus 1.92% yesterday
• Yield on 10 Year Chinese Gov’t Bond 3.31% versus 3.32% yesterday
• Yield on 10 Year China Development Bank Bond 3.77% versus 3.75% yesterday
• Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.79%