Daily Posts

Payrolls Pummel Asia/STAR Board Liquidity Issue?, June FX Reserves, Earnings Season Kicks Off

Hope you had a great holiday weekend! 

 



Key News Overnight

  • Asian equities took Friday’s strong payrolls squarely on the chin with Korea falling over 2%. HK & mainland markets fared worse on the payroll news but also twenty one companies listing on the STAR (Shanghai Science & Technology Board) on July 22 beginning their fund raising campaigns. Multiple brokers commented on investors selling stocks  or concerns that they will sell stock to raise cash in order to participate in the coming IPOs. China demanding tariffs be lifted had investors nervous the trade truce won’t lead to a trade deal. Not helping market sentiment were rumors that regulators might clamp down on real estate financing. Last but not least were a few single stock issues such as Muddy Waters issued a report “critical” of Anta Sports (2020 HK) leading to a drop of -7.32% before the HK exchange halted trading in the stock. Future Land’s CEO (1030 HK) was arrested on child abuse charges which weighed on real estate stocks. Anta is a very popular brand while the stock is heavily owned by global asset managers who will very likely buy on the dip.
  • Many have pointed to slowing auto sales as an indication of a slowing Chinese economy though this view overlooks the fact that China had very strong auto sale incentives in 2016 and 2017 that front loaded sales in those years. June auto sales increased 4.9% year over year to 1.8 million vehicles as the low base comparison obviously helped. GM reported a Q2 decline of -12.2% YoY to 753,926 vehicles sold while Ford reported a decline of -21.7% on 154,042 vehicles sold in Q2. BYD’s electric vehicle sales jumped 21% month over month in June while vehicle sales gained 3.1% to 38,735.
  • Foreign Reserves: $3.119 trillion versus estimate $3.110 trillion and May’s $3.101


Takeaway:
The weaker US dollar helped China’s foreign reserves beat analyst expectations while conspiracy theorists will love that gold reserves rose. 

The Hang Seng opened lower and stayed there closing -1.54%/-443 index points to close above 28k at 28,331 on volumes well off the 1 year average accompanied by poor breadth of only 1 gainer and 49 decliners. The index was pulled lower index heavyweights Tencent -2.45%/-69.2 index points, AIA -1.97%/-60.1 ip, CCB -1.28%/-25.9 ip, and Ping An -1.19%/-19.2 ip. The HK stocks within the MSCI China All Shares were off -1.84% led lower by tech -2.69% on concerns that the trade truce won’t yield a trade deal. Discretionary was off -2.46% led lower by Anta, real estate was off -2.42% on news Future Land CEO news though ironically it was the only stock in the sector up on the day. Healthcare was down -2.36% while communications -2.22%, energy -1.76% and materials -1.75%. Pretty ugly day across the board. Southbound Connect volumes were light as mainland investors bought the dip in HK with volume leader Tencent seeing 3 to 1 buying. 

The Shanghai & Shenzhen were off -2.58% and -2.9% on volumes in line with the 1 year average and absolutely terrible breadth as only 192 stocks advanced while 3,484 stocks declined. It was a true risk off day though small and mid caps fared slightly worse than large caps. The mainland stocks within the MSCI China All Shares lost -2.42% with tech stocks were hit hard falling -3.33% on both trade truce worries and the STAR board IPOs. Materials and both communications were off -3.33% while industrials were off -2.84% and discretionary -2.63% as all sectors were in the red. Foreign investors sold $524mm overnight after buying ~$300mm last week. 

Xioami (1810 HK) was off -3.42% in advance of its stock lock up expiration tomorrow. 

Macquacquarie upgraded several US listed Chinese internet and e-commerce companies. 

Mainland first half earning season kicks off this week while US listed Chinese companies will start reporting at month end.  

  • CNY 6.88 versus 6.88
  • Yield on 1 Day Chinese Gov’t Bond 1.43% versus 1.04%
  • Yield on 10 Year Chinese Gov’t Bond 3.22% versus 3.22%
  • Yield on 10 Year China Development Bank Bond 3.7% versus 3.68%
  • Commodities were largely lower with base metals off again on the Shanghai & Dalian Exchanges with Dr. Copper -0.06%