Daily Posts

STAR Shines while HK Demonstrations Dampen Sentiment

Hope you had a great weekend! 

Key News

  • Asian equity markets were off including HK and mainland China though for different reasons. HK was off after demonstrations turned violent while the mainland was off following the successful listing of 25 stocks on the Shanghai Stock Exchange’s STAR board. The listing companies are considered small cap stocks raising a total of $2B as the stocks traded on average over 100% with sky high valuations. The STAR companies are not part of Connect trading. In order to fund the IPOs, investors likely sold mainland stocks. This is a repeat to what was experienced when the Chinext Board first started listing. Trading desks seem to be highly skeptical of the companies’ valuations leading to the belief that these stocks will be flipped and proceeds flowing back into mainland stocks.
  • The market appeared to ignore several important trade war developments. It is being reported that Chinese agriculture buyers are reaching out to US firms. Huawei suppliers including Intel, Qualcomm and Nvidia are visiting the White House today to receive clarification on selling to the company. There are reports that the US trade team will visit their Chinese counterparts next week.
  • The State Council announced eleven measures further opening the mainland Chinese capital markets to foreign firms. Premier Li had previously announced the moves at the World Economic Forum so the response was muted though one should expect more US and global banks, insurance companies, brokerage firms and asset managers to make purchases in China.

The Hang Seng slumped in the afternoon following a press conference from the HK gov’t that failed to address concerns that have led to demonstrations. The index closed down -1.37%/-394 index points at 28,371 on light volumes well off the 1 year average accompanied by poor breadth of only 4 advancers and 45 decliners. Index heavyweights AIA was off -1.53%/-47.9 index points, Tencent -1.16%/-33.4 index points and CCB -1.44%/-29.1 index points. Real estate and casino stocks were underperformers. The HK stocks within the MSCI China All Shares were off -1.31% led lower by real estate -1.84%, financials -1.56%, industrials -1.47%, communications -1.39% and healthcare 1.39%. There was very little news nor fundamental reason for the sell off other than it is risk off. Southbound Connect volumes were light though buyers outpaced sellers by a wide margin. Volume leader Tencent had slightly more buyers than sellers. 

The Shanghai & Shenzhen were off -1.27% and -1.78% on light volumes well off the 1 year average accompanied by very poor breadth 365 advancers and 3,282 decliners. Mega caps outperformed small and mid caps as investors sold growth stocks to fund the STAR IPOs. The mainland stocks within the MSCI China All Shares declined -0.89% led lower by materials -2.42% as gold stocks saw profit taking, communications -1.59%, industrials -1.32%, and financials -0.98%. All sectors were in the red with even utilities -0.16%. Northbound Connect volumes were light with a total of $55mm added by foreign investors. Shenzhen Connect volumes exceeded Shanghai Connect volumes in what could be a developing trend. Shenzhen Connect volume leader Hangzhou Hikvision (002415 CH) jumped nearly 8% after reporting 1H 2019 results.

  • CNY 6.88 versus 6.88
  • Yield on 1 Day Chinese Gov’t Bond 2.35% versus 2.45%
  • Yield on 10 Year Chinese Gov’t Bond 3.18% versus 3.19%
  • Yield on 10 Year China Development Bank Bond 3.66% versus 3.67%
  • Commodities were mixed on the Shanghai & Dalian Exchanges with Dr. Copper +0.61%