Trade Truce?, May Industrial Profits Rebounded, SME Policy Support, Kweichow Moutai Becomes First Stock to reach CNY 1,000
Hope all is well!
Key News Overnight
- Markets cheered a report from Politico and South China Morning Post collaborated on a report that the US and China have a trade agreement in place. The WSJ threw some cold water on the positive news by saying that Huawei would have to be included in a trade deal. As mentioned last week Huawei is not a SOE unlike ZTE which makes it less politically relevant and less likely to be part of a trade deal.
- Another positive factor overnight was a statement from Premier Li that private companies/small medium enterprises would have greater access to loans as bank fees would be cut. The Ministry of Finance will provide a credit facility to support the effort which helped lifted mainland small caps which outperformed by a small margin.
- May Industrial Profits rebounded to RMB 566 billion which is a +1.1% year over year in another positive catalyst for equity markets overnight. The strong May follows a disappointing April reading of -3.7%.
- The Office of the Trade Representative’s hearings on the proposed new tariffs of $300 billion ended on Tuesday with no media coverage. I’m amazed that hundreds of US companies can testify on the damage tariffs would have on their businesses, employees and US consumers and there is was literally no media exposure. I suppose the media is competing to be the leading source for leaks (WSJ and Washington Post in the lead though even the NY Times in the mix).
The Hang Seng rebounded +1.42%/+399 index points to close at 28,621 as volumes rebounded 20% higher day over day though below the 1 year average. Breadth was very strong with 48 advancers and only 2 decliners as index heavyweights AIA +1.94%/+58.8 index points, HSBC +1.4%/+38.4 index points and CCB +1.67%/+36.6 index points as the potential for a trade resolution lifted markets. Apple supplier Sunny Optical +4.03% while energy company China Shenhua declined -5.4%. The HK stocks within the MSCI China All Shares gained +1.2% led unsurprisingly by tech +2.61%, discretionary +2.51%, staples +1.91%, healthcare +1.42% and financials +1.35% while utilities slipped -0.35%. Southbound Connect volumes were moderate with mainland buyers back buying HK stocks with volume leader CCB seeing very strong buying. Interesting that Ping An saw selling.
The Shanghai & Shenzhen gained +0.69% and +1.09% on strong volumes up 21% day over day and above the 1 year average. Breadth was good with 2,435 advancers and 1,175 decliners. As mentioned small caps managed a small gain versus large caps. The mainland stocks within the MSCI China All Shares gained +1.25% with tech +2.1%, staples +2.04%, financials +1.38%, healthcare +1.18% and materials +0.99% as all the sectors ended in the green. Northbound Connect flows rebounded in light volumes as foreign investors bought $558mm of mainland stocks. Interesting that flows into the Shenzhen Stock Exchange were strong.
We are finally getting some single stock news!
Liquor giant Kweichow Moutai reached 1,001 intraday to become the first Chinese stock to reach the 1k level though the stock closed at 996.
HK listed delivery giant Meituan Dianping announced a partnership with Indian hotel chain Oyo.
Chinese EV maker Nio is recalling 5,000 cars due to a battery issue.
- CNY 6.87 versus 6.87 yesterday
- Yield on 1 Day Chinese Gov’t Bond 1.06% versus 1.09%
- Yield on 10 Year Chinese Gov’t Bond 3.27% versus 3.25%
- Yield on 10 Year China Development Bank Bond 3.74% versus 3.74%
- Commodities were mixed on the Shanghai & Dalian Exchanges with Dr. Copper -0.46%