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Quiet Night, Yirenda Throws the Kitchen Sink in Their Earnings Report

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  • A fairly quiet night as Asia and HK cheered Powell’s dovish comments while the mainland markets gave back early gains on lingering trade concerns.
  • Yesterday I attended a conference on the STAR (Shanghai Stock Exchange Science and Technology Board) hosted by a big Chinese brokerage firm with attendees from the Shanghai Stock Exchange and CSRC (the SEC of China). It will be interesting to see how the IPOs on the STAR perform though the companies will be small. I found the comments from the CSRC and Shanghai Stock Exchange speakers to be interesting as they referenced the continued opening of China. The reforms taken to make the MSCI China A inclusion feasible were highlighted. S&P became the first mainland bond rating overnight after China allowed foreign bond rating companies into China last year.
  • Budweiser Brewing Company APAC Ltd. has missed expectations surrounding the size and demand of its coming IPO. The company has lured both institutional and retail investors by pricing below the mid-level range between HK $40 to HK $ 47. A broker reported that institutions had oversubscribed by 1.5X while HK retail investors had oversubscribed 3X. Higher margin rates are making it more expensive for retail investors to lever up their positions. The stock will very likely be fast tracked into indices which could make an early investment profitable knowing that passive flows will follow.
  • The Hang Seng gained +0.81%/+227 index points as volumes rebounded slightly +5% day over day but well off the 1 year average though breadth was strong with 46 advancers and 4 decliners. Insurance giant AIA jumped +1.26%/+38.3 index points followed up by CCB +1.14%/+23.2 index points and energy giant CNOOC +2.44%/+17.7 on continued Persian Gulf tensions. Apple supplier Sunny Optical had a strong day +3.21%/+5.9 index points while Geely Auto -1.5%/-2.9 index points. The HK stocks within the MSCI China All Shares gained +0.46% led by the energy sector +1.93%, financials +0.78% and utilities +0.68%. The only sector in the red was discretionary -0.41% as autos lagged and Meituan Dianping off -2.1% after Fortune China 500 list showed that company lost the most money of any company on the list. In fact it lost more money than the other 29 companies who lost money on the list combined. Southbound Connect volumes were light as sellers outpaced buyers with volume leader Tencent had 2 to 1 selling.
  • The Shanghai &; Shenzhen opened higher by slowly eased over the course of the trading day to close +0.08% and -0.12% on volumes +5% day over day but well off the 1 year average while breadth was light 1,413 advancers 1,975 decliners. The mainland stocks within the MSCI China All Shares gained +0.18% as gold stocks led the material sector +0.87%, energy +0.67% and utilities +0.63%. Tech was weak -0.34% on lingering trade concerns, discretionary was off -0.32% on weaker autos, staples -0.26% as liquor names were soft and real estate -0.21%. Mega caps outperformed mid and small caps which explains the exchange divergence. Northbound Connect volumes were light but foreign buyers did return investing $354mm in net purchases (buys minus sells). Connect turnover on Shanghai and Shenzhen were about even which is interesting considering the Shanghai is many times bigger than Shenzhen from a market cap perspective.
  • Foreign Direct Investment in China gained 8.5% YoY to RMB 109B ($15.8b) and YTD FDI rose +7.2% to RMB 478.3B according to Bloomberg. The report runs counter to the consistent theme of multi-nationals fleeing China.
  • Online peer to peer lender Yirendi (YRD US) reported Q1 earnings after the US market close. If there was any question that regulators have taken significant measures to reduce P2P lending, exhibit A would be this earnings report. Consumer credit loan originations decreased 45% year over year while the number of borrowers decreased 48% YoY. The company announced the resignation of the CEO. The Chief Risk Officer also resigned. The company is renaming itself as well. Houston….With that said YRD (and maybe I’m summoning my inner “Always Look On the Bright Side of Life”),  is acquiring smaller companies in the space as the company has enough scale to survive, cooperate with regulators and potentially thrive in the long run (I’m not advocating buying the stock as FYI). Also interesting was their delinquency rates didn’t increase significantly which shows the financial strength of Chinese households.
  • JAT or BATJ? The acronym BAT stands for Chinese internet leaders Baidu, Alibaba and Tencent. The success of JD.com, which IPOed in 2014, led to the acronym BATJ. With Baidu falling to 91 and JD climbing to 17 on the Fortune China 500, one mainland media source speculated that the acronym should really be JAT. (I prefer TAJ personally.) The Fortune list was cited in numerous mainland media articles.
  • Vipshop (VIPS US) fell -7.51% yesterday after announcing it will pay RMB 2.9B ($422mm) for discount retailer Shan Shan Outlets.
    • CNY 6.86 versus 6.88
    • Yield on 1 Day Chinese Gov’t Bond 1.8% versus 1.8%
    • Yield on 10 Year Chinese Gov’t Bond 3.19% versus 3.20%
    • Yield on 10 Year China Development Bank Bond 3.69% versus 3.69%
    • Commodities were largely higher on the Powell testimony on the Shanghai & Dalian Exchanges with Dr. Copper +1.39%

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