Multiple Catalysts as Mainland Volumes Surge
Apologies for the late edition as my flight to the west coast was delayed for several hours last night.
- The State Council announced local governments will be allowed to issue bonds to fund infrastructure projects such as railway, highway and energy projects. This activity had been curtailed as tax cuts limited funds available. Infrastructure related names had a very strong day on the news as brokers estimate it could raise GDP by 20 to 50bps. Policy makers willingness to support the economy was broadly seen as a positive by the market as it should be!
- CNY appreciated on the day halting a recent slide. Several brokers noted the strong price level as a market vote of confidence.
- Alibaba had a strong day yesterday in the US after announcing it is hiring two investment banks for a HK listing. A HK listing could allow the company to buy the Altibaba shares that are being sold down as the old Yahoo stake winds itself down.
- Markets are taking a positive view of a Trump Xi meeting at the G 20 as today and yesterday’s rally included trade war sensitive technology performing well.
The Hang Seng jumped +0.76%/+210 index points on moderate volume just below the 1 year average and strong breadth of 36 advancers and 13 decliners. Insurance giant AIA gained +1.05%/+29.3 index points followed by Ping An Insurance +1.78%/+26.4 index points, CCB +1.27%/+26.3 and HK Stock Exchange +2.64%/+24.9 index points on the BABA IPO news. Despite AIA and HK Stock Exchange not being in the MSCI China All Shares due to their HK domicile, the HK stocks in the index gained 1.21% as materials and industrials ripped 3.51% and 2.52% on the infra news. As noted tech was 2.26% while financials had a good day 1.61% after recent weakness. Energy and utilities lagged +0.21% and +0.11% though communications Tencent’s big gains yesterday +0.46%. Southbound Connect volumes were moderate though volume leaders ICBC, CCB and Tencent had outsized buying as buyers outpaced sellers.
The Shanghai & Shenzhen surged +2.58% and +3.71% as volumes increased 50% day over day and well over the 1 year average while breadth was simply amazing with 3,602 advancers and 63 decliners. Within the mainland stocks held by the MSCI China All Shares, staples led by food and alcohol stocks gained +5.28%, industrials +3.87%, technology 3.86% and materials 3.82%. Healthcare rebounded 3.54% as investors look for value following the industry audit. It was clearly a very broad rally as even utilities gained +1.53%. Mid-caps and small caps outperformed mega cap and large caps by 100bps. Foreign investors were active as Northbound Connect volumes were heavy as buyers dominated the day with $1 billion being invested in mainland stocks for the second day in a row.
- CNY 6.91 versus 6.93 yesterday
- Yield on 1 Day Chinese Gov’t Bond 1.7% versus 1.7%
- Yield on 10 Year Chinese Gov’t Bond 3.31% versus 3.2499%
- Yield on 10 Year China Development Bank Bond 3.77% versus 3.74%
- Commodities were largely higher on the Shanghai & Dalian Exchanges with Dr. Copper +0.28%