Daily Posts

G-20 Begins, Altaba Liquidation


Key News Overnight

  • The G-20 kicked off in Osaka with President Trump providing balanced remarks regarding a China deal while President Xi spoke to opening China’s economy to foreign businesses and the importance of shared interests. Market expectations are fairly muted on a trade war ending deal being struck though a truce is expected. De-escalation could lead to a resumption of the Q1 China rally. The Q1 rally was snuffed out by the April 5 Huawei/tech war tweet which led to the pullback in April and May.
  • If we step back and turn off the noise: YTD Performance Shanghai Composite +19%, Shenzhen Composite +23%, Hang Seng +10%. Pretty good!
  • P/E and Forward P/E Ratios Shanghai 14/11 Shenzhen 35/16 Hang Seng 11/11. Also good!
  • Official PMIs will announced over the weekend followed by Caixin PMIs Tuesday. HK is closed Monday.

The Hang Seng came off intra-day’s lows with a late afternoon rally to close -0.28%/-19 index points as the index ended the month +6.1%. Investors were in a wait and see mode as volumes were off -8% day over day and below the 1 year average as only 13 stocks advanced and 37 decliners. China Construction Bank (CCB) gained +0.75%/+16.5 index points though HSBC eased -0.38%/-10.4 index points and Link REIT -1.64%/-10 index points on a weak day for real estate plays as bank mortgage rates cuts are not expected. The HK stocks within the MSCI China All Shares were off -0.01% as discretionary gained +0.62%, real estate +0.47% and materials +0.06% while energy eased -0.65% and healthcare -0.63%. Link REIT is a HK domiciled stock so it is not considered a Chinese company as HK real estate plays were off on the lack of mortgage rate cut though Chinese real estate companies listed in HK were up. Southbound Connect volumes were light though mainland investors were buyers with CCB seeing very large buying. 

The Shanghai & Shenzhen saw profit taking as both indices eased -0.6% and -0.96% on light volumes off -12% day over day and below the 1 year average. Breadth was weak with only 561 advancers and 3,054 decliners as small caps underperformed due to tech’s underperformance. The communications and tech sectors fell -0.79% and -0.68% within the MSCI China All Shares’ mainland stocks which fell -0.18% as reports that Huawei needs to part of a deal (something I don’t believe is accurate) weighed on sentiment. Discretionary and staples managed to gain +0.3% and +0.28%. Northbound Stock Connect was closed due to HK’s holiday Monday. SH & SZ gained 2.77% and 2% in June. 

Altaba shareholders voted yesterday to dissolve the company by Q3’s end. This requires the company to sell its remaining 140mm shares though maybe Alibaba’s HK listing proceeds allows it to buy these shares. By publicly disclosing its moves, Altaba has been shooting its own foot since its value is driven by BABA price. If we know you are going to sell 157 million Alibaba shares why wouldn’t we sell BABA short? Alibaba has become very heavily short as HFs go long Altaba and short BABA. Good riddance to AABA and Yahoo. 

The depressed valuations of HK and mainland stocks is notable from both a historic and relative perspective. In what could be the start of a trend, Asia Satellite announced it is being bought out by majority owners Citic, a large Chinese investment bank, and US PE firm Carlyle Group. Why not buybacks? We did see Ping An announce buying back shares of its mainland listing last week. The US buyback phenomenon is largely driven by low interest rates which allow for debt issuance and the proceeds funding the buybacks.   

  • CNY 6.87 versus 6.87 yesterday
  • Yield on 1 Day Chinese Gov’t Bond 1.47% versus 1.06%
  • Yield on 10 Year Chinese Gov’t Bond 3.27% versus 3.27%
  • Yield on 10 Year China Development Bank Bond 3.73% versus 3.74%
  • Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.21%