Hope all is well! Apologies as I had breakfast with Beijing tech analyst this morning. I’ll report on that tomorrow.

Key News Overnight

• Trump’s announcement of a phone call and coming meeting lifted animal spirits across Asia with trade war sensitive technology stocks surging. Risk on assets rallied broadly as evidenced by Taiwan’s strong performance while specific to China, CNY rallied, bonds sold off and equities gained. Less publicized was an onshore media source reporting that the PBOC and CSRC (SEC of China) met with the six largest banks to ensure their lending to large securities firms as they support smaller financial institutions. Since the regulator took control of Baoshang Bank there has been concern lending to smaller financial firms has been curtailed. Liquidity is the life blood of any financial system. A mainland broker noted that negotiated CDs, which trade like commercial paper on the interbank bond market, have seen a pick up in sales for the first time Baoshang. The news sparked a rally in brokers while financials had a strong day in both HK and the mainland. Several US brokers noted short covering yesterday following the trade announcement.
• The Section 301 Tariff Hearings have received absolutely zero coverage from the US media. Unbelievable that over three hundred companies and over 100 trade associations can publicly testify on how tariffs will hurt their businesses and clients but receive no attention. Using my favorite Google Trends, typing Section 301 Tariff Hearings once receives the “Hmm, your search doesn't have enough data to show here”.
• Nikkei is reporting Apple is considering moving some production out of China. At some point over the next year, China’s retail sales will eclipse the US’ retail sales. Besides the logistical challenges of moving a factory, why would any company move production away from the soon to be largest consumer market globally?

The Hang Seng surged +2.55%/+703 index points to close above 28k at 28,202 on very strong volumes up 48% day over day and above the 1 year average in the strongest volume day in a month. Breadth was impressive with 48 advancers and 2 decliners (Link REIT and Shenhua Energy dropped -0.26% and -0.47%) as index heavyweights had a very strong day as AIA +4.3%/+119 index points, Tencent +3.95%/106.5 index points and Ping An +3.59%/+53.3 index points drove the benchmark higher. Ping An announced it bought 13mm shares (0.07% of shares outstanding) of the company’s Shanghai shares yesterday in the company’s first ever buyback. Apple Supplier Sunny Optical surged +10.11%/+15.7 index points after hosting its investor day yesterday and providing an optimistic outlook. Fellow Apple supplier AAC popped +4.49%/+4.3 index points. The HK stocks in the MSCI China All Shares gained +2.76% as tech +4.75%, communications +3.41%, discretionary +3.31%, energy +2.85%, materials +2.57% as all sectors were in the green. Southbound Connect flows were light with sellers slightly outpacing buyers though volume leader Tencent did see buyers outpace sellers.

The Shanghai & Shenzhen gapped higher but eased over the course of the day to close +0.95% and +1.31% as volumes surged 56% day over day and ~20% above the 1 year average. Breadth was strong with 3,271 advancers and 318 decliners. The SH and SZ were up +2.19% and +2.93% at their highs but eased on quick profit taking and maybe some skepticism on a G-20 trade war resolution. It was a fairly broad rally as mega/large, mid and small all had a strong day. The mainland stocks in the MSCI China All Shares gained +1.7% as tech gained +3.02%, discretionary +2.21%, financials +1.93%, healthcare +1.82%, industrials +1.71% as all sectors gained on the day. Northbound Connect volumes light but foreign buyers were out in force as $713mm of mainland stocks were bought in the strongest inflow day since late May. MSCI inclusion stocks Ping An and Kweichow Moutai were volume leaders with buyers outpacing sellers.

A photo of Tesla’s Shanghai Gigafactory was highlighted by several media sources. While I have zero expertise nor experience in factory construction, it looked pretty close to finished from the outside. 

Rizhao Port (6117 HK) listed on the HK gaining an amazing 166% that values the company at $817mm. 

US listed YY sold $425mm of convertible notes due in 2026. 

Baidu was called “significantly undervalued” by a sell side analyst as the stock’s 56% fall since July 2018 is “overdone".

• CNY 6.90 versus 6.92 yesterday
• Yield on 1 Day Chinese Gov’t Bond 1.49% versus 1.48%
• Yield on 10 Year Chinese Gov’t Bond 3.2499% versus 3.22%
• Yield on 10 Year China Development Bank Bond 3.74% versus 3.73%
• Commodities were higher on the Shanghai & Dalian Exchanges with Dr. Copper +1.18%