Hope you had a great weekend! 

Key News Overnight

• A fairly quiet night as Wilbur Ross delivered cautious comments on a deal being struck between Trump and Xi at G-20 meeting. HK head Carrie Lam apologized and delayed the bill that would have allowed for extradition from HK to the mainland which sparked massive protests last week and over the weekend. The bill delay improved HK sentiment overnight.
• Alibaba is splitting its shares 8 from 1 though there is chatter the HK IPO will be in the $10 to $15B range as opposed to $20B. The share split provides confirmation the HK listing will occur as HK retail investors require low share prices.
• Shanghai London Stock Connect launched with Huatai Securities listing. The London Connect differs from the HK Shanghai/Shenzhen Connect as Huatai listed a CDR (like a an ADR but Chinese depository receipt). London isn’t an access program like HK though it allows for arbitrage as one can exchange their CDR for the local shares after 120 days. This is a unique feature versus HK Stock Connect which requires more work on my part.
• Huawei, a private company though many of its suppliers are publicly traded, delivered a somber outlook for the next two years based on curtailed US technology purchases as founder Ren Zhengei announced revenue growth would fall $30B over the next two years to stay at $100 billion. Non China smart phone sales are expected to fall 60% driven by Google cutting the company off from the Android operating system. Tech was widely weaker on the news. 

The Hang Seng had a strong morning gaining +1.42% though curbed its enthusiasm in the afternoon session to close +0.4%/+108 index points on very light volume that was only 2/3 of the 1 year average and the lowest volume day in a month and a half. Breadth was mixed with 26 advancers and 19 decliners as AIA’s +1.9%/+51.4 index points accounted for nearly half of the index’s gain while HSBC +0.63%/+16.9 index points, ICBC +1.05%/13.5 index points and HK Exchange +1.31%/12.4 index points on the Alibaba share split news. Banks gained as the PBOC has proactively kept liquidity in the banking system after a small mainland bank was taken over. Though small bank it regulators were worried its failure could spark a wider problem. The HK stocks within the MSCI China All Shares declined -0.21% as AIA and the HK Exchange are not a Chinese company due to its HK domicile.  Healthcare had a strong day +0.79% after a Chinese pharma company reported a solution to a malaria while energy rose on Mideast tension +0.62% though staples was weak -1.29% on food and beverage weakness. Industrials and real estate were weak as well -1.01% and -0.91%. Once again Stock Connect is the most noteworthy item as volumes were light but buyers were very active especially in volume leader CCB and ICBC.  

The Shanghai & Shenzhen also gave up morning gains to close +0.2% and -0.2% on light volumes down 25% from Friday and only ¾ of the 1 year average. Breadth was moderate with 1,924 advancers and 759 decliners. Mega caps outperformed as large and mid were inline though small caps underperformed. Within the mainland stocks of the MSCI China All Shares trade sensitive tch underperformed -1.05% on the Huawei news and diminished hope for a trade deal occurring in the short run. Energy and financials outperformed +0.51% and +0.48% while staples lagged -0.83%. Northbound Connect flows were moderate as foreign investors were buyers of Shanghai large caps and sellers of Shenzhen listed small caps. There was net buyers of $73mm worth of mainland stocks.

Tencent CEO Pony Ma made Barron’s top CEO List this weekend. 

A mainland media source noted that Jack Ma met with the State-Owned Assets Supervision and Administration Commission of the State Council on Sunday. The latter governs SOEs providing speculation that Alibaba’s technologies in cloud computing and data could see further purchases from local companies. Jump starting SOEs by leveraging the technology capabilities of tech leaders such as Alibaba could provide a tailwind for both sets of companies. 

JD.com kicks off its 6.18 shopping festival tomorrow. My colleague Joe said there advertisements for JD’s response to Alibaba’s Singles Day 11-11 sales festival across Beijing in his visit last week.

• CNY: 6.92 versus 6.92 yesterday
• Bond rally overnight
• Yield on 1 Day Chinese Gov’t Bond 1.48% versus 1.59%
• Yield on 10 Year Chinese Gov’t Bond 3.2499% versus 3.26%
• Yield on 10 Year China Development Bank Bond 3.73% versus 3.73%
• Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.65%