HK Plays Catch Up, Premier Li at World Economic Forum
Hope all is well! Apologies for the late delivery as I’ve had a busy morning.
Key News Overnight
- The HK market followed the US market and mainland market’s move yesterday by trading higher as investors focused on the trade truce and not local protests that turned violent over the proposed extradition law. Despite the proposal being back burnered protesters stormed the Legislature Council and trashed it. The mainland market saw a bout of profit taking after yesterday’s strong move as investors acted more like traders than investors. Foreign investors invested $163mm as Northbound Connect reopened for the first time since last Thursday.
- Premier Li spoke at the World Economic Forum where he announced foreign ownership limits of financial firms such as brokerage and life insurance will be lifted by 2020. The speech reiterated several consistent themes on continued stimulus but not the massive “shock and awe”/kitchen sink in 2009. Stimulus will be directed at private/small medium enterprises. There have been reports that both JP Morgan and Morgan Stanley are close to taking control of their local joint ventures by raising their ownership from 49% to 51%.
The Hang Seng surged +1.17%/+332 index points following US equity markets higher as volumes surged 56% from Friday’s close and above the 1 year average accompanied by strong breath of 47 advancers and 2 decliners. The index would have been higher if not for CCB declining -5.05%/-105.9 index points though Tencent jumped +2.78%/+81.2 index points, AIA +2.31%/+72 index points and Ping An +3.04%/+49.7 index points. I’m not seeing any news on CCB’s big move. The HK stocks within the MSCI China All Shares Index gained +1.99% led by tech +4.47%, discretionary +3.07%, healthcare +2.95%, communications +2.43%, staples +2.17% and real estate +2.02% as all sectors were in the green. Southbound Connect volumes were moderate with buyers outpacing sellers though volume leader Tencent had 2 to 1 selling.
The Shanghai & Shenzhen traded in a tight range to close -0.03% and +0.16% on strong volume above the 1-year average but off -12% day over day in mixed breadth of 1,364 advancers and 2,164 decliners. Small caps outperformed large caps despite tech having an off day due to profit taking. The mainland stocks in the MSCI China All Shares declined -0.35% as tech fell -1.5%, communications -0.97% and financials -0.86%. Healthcare had a good day +0.76%, discretionary +0.65% and materials +0.3%. Northbound Connect volumes were moderate with $163mm of inflow as foreign investors favored Shenzhen names (small cap/mid-cap) over Shanghai names (mega/large-cap).
Budweiser Brewing Co. APAC Ltd., the Asia Pacific arm of Inbev, announced a proposed $9.8B IPO led by book runners Morgan Stanley and JP Morgan. The July 19th listing on the HK Stock Exchange would be the largest food/beverage IPO ever. The company did $8.46B in revenue and net profit of $1.41B in 2017. Several years ago I went into rural China to visit a planned megacity. At a local restaurant, I was surprised to be served a Budweiser as we were well off the beaten path.
SH & SZ have punched above the May consolidation resistance levels at the 3,000 and 1,580 levels. It will be interesting if they can regain the April highs of 3,270 and 1,783.
Macau casino stocks had a strong day after better than expected June revenues which were up 5.3% year over year to $3 billion.
Xiaomi lock-up expiration July 9th.
- CNY 6.87 versus 6.84 yesterday
- Yield on 1 Day Chinese Gov’t Bond 1.01% versus 1.16%
- Yield on 10 Year Chinese Gov’t Bond 3.25% versus 3.26%
- Yield on 10 Year China Development Bank Bond 3.69% versus 3.73%
- Commodities were lower with base metals off sharply on the Shanghai & Dalian Exchanges with Dr. Copper -1.12%