Tariff Escalation Threat Weighs on Markets, Kweichow Moutai Earnings Release, DouYu IPO Today
Hope all is well!
Key News Overnight
- President Trump’s mid-afternoon cabinet meeting threat of imposing tariffs on the remaining $325B of exports due to a lack of Chinese agriculture purchases was widely covered in Asia which weighed on sentiment. Asian equities were predominantly off with export heavy Korea off nearly 1%. China’s earnings season is apt to take center stage in the short term as Kweichow Moutai (600519 CH) reported after the close that 1H 2019 net income grew 26.6% as revenue reached CNY 41.2B.
- Premier Li stated that policy makers stand ready to provide counter-cyclical measures to support the economy. On broker noted that the Premier Li’s comments were at an event with economists and private industry executives. The inclusion of the latter reinforces the support of the private/small medium enterprises. One mainland research firm believes the support of the private sector is a strong confidence booster.
- China’s holding of US Treasuries declined by $2.8B to $1.11 trillion as Japan may become the largest holder if the trend continues based on its $1.1 trillion holdings.
The Hang Seng eased -0.09%/-26.4 index points to 28,593 though it overcame an early loss of -0.85% after following the US equity market south but grinded higher through out the day. Volumes were light declining 8% day over day and well off the 1 year average on mixed breadth of 20 advancers and 25 decliners. Energy giant CNOOC was off -1.79%/-12.7 index points, CCB off -0.48%/-9.79 while Ping An gained +0.48%/+7.6 index points after subsidiary Ping An Life report strong earnings and Geely Auto jumped +3.04%/+6.1 index points on no news which left traders scratching their heads. The HK stocks within the MSCI China All Shares gained +0.05% led higher by discretionary on Geely’s move, real estate jumped +0.87% driven by real estate giant Evergrande popping ahead of earnings tomorrow and the potential for a special dividend, materials +0.51% and healthcare +0.12%. Energy was off -0.79% while staples was off -0.73% as liquor names see profit taking. Southbound Connect volumes were light though buyers outpaced sellers. We continue to see mainland investors buying HK names.
Shanghai & Shenzhen diverged with the former easing -0.2% and the latter +0.16% as volumes gained 8% day over day though were still below the 1 year average. Breadth was mixed with 1,468 advancers and 1,852 decliners as small and mid caps outpaced large caps. The mainland stocks within the MSCI China All Shares declined -0.02% as real estate +0.74%, tech +0.65% though communications was off -0.37%, discretionary -0.32% and healthcare -0.27%. Northbound Connect volumes were light though foreign investors were active buyers with total inflows of $254mm. Interesting to see Shenzhen Connect volumes outpaced Shanghai Connect volumes.
Tencent backed online gaming, e-sports and live streaming company DouYou International Holdings Ltd. (DOYU US) will list on the Nasdaq toady after selling 22.5 million shares at the bottom of its projected listing price at $11.50 raising $775mm and valuing the company at $3.7B. The company was brought public by Morgan Stanley, JP Morgan, Bank of America and CMB International Capital (China Merchants Bank).
Credits Suisse provided a number of upgrades/downgrades including a downgrade of Kingsoft (3888 HK), upgrade of Ctrip (CTRP US), Pinduoduo downgrade to neutral (PDD US), Weibo (WB US) downgrade to neutral and initiation of iQIYI (IQ US) at outperform. A bold move by their analyst pre-earnings season.
Institutional consulting firm Meketa released a white paper on the MSCI China A inclusion. The firm joins a pervious release from peer Cambridge Associates which argued for a dedicated China allocation in portfolios .
Burberry (BRBY GB), which generates 16% of revenue in China, reported China store results grew in the mid-teens. Additionally the company reported its online presence was growing via WeChat and TikTok.
- CNY 6.87 versus 6.87
- China’s yield curve has flattened recently though one broker attributes tax payments as a driver of higher short term rates.
- Yield on 1 Day Chinese Gov’t Bond 2.39% versus 2.29%
- Yield on 10 Year Chinese Gov’t Bond 3.19% versus 3.19%
- Yield on 10 Year China Development Bank Bond 3.68% versus 3.68%
- Commodities were firmer on the Shanghai & Dalian Exchanges with Dr. Copper +0.09%