Daily Posts

Lujiazui Forum Comments Reverse Market Declines, BABA’s Real HK Motives, Northbound (Foreign) Buying (Again), China Tobacco’s HK IPO on Fire

Hope all is well!

  • Vice Premier Liu He gave the keynote speech mid-morning at the Lujiazui Forum, an annual two day event in Shanghai held by the PBOC, in which he reiterated China’s commitment to opening up financial markets, the long run strength and trajectory of the Chinese economy. While not naming the trade war directly, “external pressures” would have a positive effect on China as it forces “economic restructuring and upgrading”. He’s speech was a turning point in the day’s trading as it is clear there will be continued stimulus to support the economy. I should have noted that yesterday’s Money Supply/New Loans were released after the market close. Though by no means bad they were by no means great which along with a weak US equity market may have been a factor in the weak morning opening across Asia. PBOC Governor Yi speech spoke to raising Shanghai as China’s financial capital. The event also celebrated the official launch of the Shanghai Stock Exchange’s Science and Technology Board which will be known as the SSE STAR Market. Actual listings appear to be at least a month or two away though the idea is to keep the next Alibaba from listing outside of China.
  • Bloomberg is reporting that Alibaba has filed confidentially for a HK listing looking to raise $20 billion. Despite having $30 billion in cash, according to Bloomberg the proceeds would be used to battle Meituan Dianping. I believe the HK listing proceeds would be used to buy Altibaba’s remaining Alibaba stake. Altibaba publicly announced it is selling half of its 280mm Alibaba in the open market by the end of June. I will be diplomatic by calling Altibaba’s decision a head scratcher as to why would you publicly disclose the shares to be sold and give the date! This has led Alibaba to become the most heavily shorted stock in the US as hedge funds go long Altibaba and short Alibaba. Altibaba will own 140mm BABA shares by the end of June which would be valued at $20 billion. Pure speculation on my part but the numbers work. 

The Hang Seng reached a mid-morning low of -1.77% but reversed on Liu He’s comments to end the day -0.05%/-13.7 index points on light volumes up 5% day over day but off the 1 year average. Breadth was mixed with 27 advancers and 21 decliners with Tencent -0.95%/-25.4 index points though off its low of -3%, HSBC -0.62%/-17.6 index points and real estate firm Country Garden +5.14%/+13.4 index points. Protests in HK died down a bit as more than one broker noted that recent headlines on Middle East tensions is a wanted distraction as HK has special trade status with the US. The HK stocks within the MSCI China All Shares were off -0.07% as real estate rebounded 2.96% and tech +0.27% on the STAR exchange news though energy was off -1.06% on the tanker attacks. Southbound Connect volumes were light but buyers were out (again) in force as volume leaders ICBC, CCB and Tencent all had outsized buying (again). 



The Shanghai & Shenzhen reversed mid-morning losses of -0.81% and -0.72% to close +0.05% and +0.29% on Liu He’s comments. Technicians would have liked to have seen stronger volumes on the upswing as day over day volume declined -12% and off the 1 year average. On plus side breadth was strong with 2,433 advancers and 1,071 decliners. Small and mid caps slightly outperformed mega caps driven the STAR news positive effect on communication and technology stocks. The mainland stocks lost -0.16% as gains in communications +0.85%, energy +0.26%, healthcare +0.19% and tech +0.08% were offset by weakness in discretionary -0.8%, real estate -0.79% and utilities -0.78%. Northbound Connect volumes were light but foreign investors were buyers (again) adding $169mm to mainland stocks. 

 

China Tobacco (6055 HK), China’s monopoly cigarette company, went public Tuesday gained 40% overnight giving the company a market cap of $642mm.

A mainland source noted that Ant Financial and Vanguard penned a MOU though there were no details released. MOUs get signed left and right so it is hard to say anything impactful will come of it.

  • May Non-financial Foreign Direct Investment: 8.5% versus April’s 6.3% .

Takeaway: The strong May FDI received no attention other than here. One would assume that foreign companies would be backing off investing in China though the Ministry of Commerce reading was just the opposite. The Peterson Institute had an interesting piece yesterday on how China has lowered import tariffs for most countries while raising tariffs on US imports in retaliation. Maybe companies from other countries are looking to capitalize on the weak position of US companies in China? Hard to say!

 



  • CNY 6.92 versus 6.91 yesterday
  • Yield on 1 Day Chinese Gov’t Bond 1.69% versus 1.7%
  • Yield on 10 Year Chinese Gov’t Bond 3.29% versus 3.31%
  • Yield on 10 Year China Development Bank Bond 3.76% versus 3.76%
  • Commodities were down on the Shanghai & Dalian Exchanges with Dr. Copper -0.69%