Daily Posts

Summer Swoon as Trade Talks Stall

Apologies for the late arrival as my house was hit by lighting last night causing a multitude of issues. 

Key News

  • Asia followed the US equity market south with Japan particularly weak as both South Korea and Indonesia cut interest rates overnight. While the US market swoon was cited as a culprit, China and HK were driven lower by the lack of progress on trade and potential for Huawei to become a stumbling block in negotiations. I am a little surprised by the Huawei news as it is not a SOE unlike ZTE. Trade sensitive sectors such as tech were particularly weak overnight while several subsectors such as gaming stocks and healthcare saw short term profit taking.
  • Several US listed Chinese internet and e-commerce names were down yesterday. Tencent Music Entertainment (TME US) was hit with several factors including the weak DOYU IPO, a PE firm announced they had sold shares Monday night leading to speculation other PE firms might sell in the future, general weakness in the video streaming names of late (YY, HUYA, MOM, BILI) and an announcement that Sony is establishing a music unit that could compete w/TME. Baozun (BZUN US) was weak with one sales/trader speculating that the company’s reliance on foreign companies distributing to mainland consumers could be negatively impacted by the trade war. Such speculation is unwarranted in my opinion as BZUN distributes for Nike in China which is a very popular brand though the goods sold in China are manufactured in China and therefore would not be tariffed. Generally speaking summer volumes are light leading to exaggerated moves. In many respects I wish these companies reported sooner as it might be the catalyst needed to get these names moving.

The Hang Seng traded in a narrow range to close -0.46%/-131 index points at 28,461 on flat volumes day over day though below the 1 year average. Breadth was weak with only 8 advancers and 39 decliners as Tencent fell following DOYU’s weak IPO -1.82%/-52.2 index points, AIA gained +0.76%/+23.6 index points, and energy giant CNOOC -2.28%/-15.8 index points following a broker downgrade. Apples suppliers and trade sentiment driven Sunny Optical and AAC were off -2.33%/-4.3 ip and -2.27%/-2.1 ip. The HK stocks within the MSCI China All Shares were off -0.81% as tech and communications were -1.49% and -1.45% while energy declined -1.34% and discretionary -1.12%. Staples was the only sector in the green gaining +0.99%. Southbund Connect volumes were light though mainland investors turned sellers with Ping An seeing outsized selling while Tencent had not quite 2 to1 selling. 

The Shanghai & Shenzhen were off -1.04% and -1.63% on lower volume 4.8% day over day though well off the 1 year average as breadth turned decidedly negative with 491 advancers and 3,143 decliners. Large caps held up declining ~50bps as financials had a slight decline while tech and communications underperformed leading to underperformance in mid and small caps. Though not in MSCI indices, Han’s Laser (002008 CH) declined -9.11% after their weak earnings release and a boutique research firm’s report speculating the company’s Europe research and development efforts were actually invested in a hotel. The stock had been a foreign favorite but was removed from MSCI indices after hitting foreign ownership limits. The mainland stocks in the MSCI China All Shares declined -1.09% led lower by tech and communications -2.43% and -1.63% though it was a weak day as healthcare declined -1.42%, staples off on Kweichow Moutai’s earnings -1.41%, industrials -1.31% and discretionary -1.2%. Utilities managed a gain of +0.34% while financials declined a modest -.044%. Connect volumes were light though foreign investors did invest $268mm into mainland stocks overnight.

  • CNY 6.88 versus 6.87
  • Yield on 1 Day Chinese Gov’t Bond 2.45% versus 2.39%
  • Yield on 10 Year Chinese Gov’t Bond 3.19% versus 3.19%
  • Yield on 10 Year China Development Bank Bond 3.67% versus 3.68%
  • Commodities were weaker on the Shanghai & Dalian Exchanges with Dr. Copper -0.43%