Daily Posts

PBOC: No Interest Rate Cut Coming, New Oriental Education Reports, STAR Board Slips in Day Two

Hope all is well!

Key News Overnight

  • Asian equities rebounded overnight though news flow and volumes were light. Positive trade talks helped the tech, 5G and telecom stocks while the PBOC stated they would not cut interest rates in response to a Fed move helped CNY appreciate slightly versus the dollar. A broad interest rate cut is a blunt tool while the policy makers have preferred more targeted policies to help specific industries that have been hurt by the trade war.
  • President Trump met with the CEOs of several technology companies including Google, Qualcomm, Cisco, Intel, and Broadcom that have historically had business with Huawei and in China. The President was joined by his economic and trade team in a sign that the US stance to Huawei might be softening.  The WSJ had an article on efforts to prevent Chinese companies from selling buses and passenger rail cars in the US on the premise of security concerns. The irony is BYD, the EV bus maker Warren Buffet owns 8% of, actually manufactures their US sold buses in the US putting 800 US workers jobs at risk.
  • Twenty one of the twenty five STAR Board listings declined as traders flipped the stocks after massive gains yesterday. Volumes in the stocks dropped by 50% day over day as trader reallocated back into Shanghai & Shenzhen stocks.

The Hang Seng opened down by grinded higher to close +0.34%/+95.2 index points at 28,466 on light volumes off -13% day over day and well off the 1 year average. Breadth was positive with 33 advancers and 12 decliners as HSBC gained +0.47%/+12.6 index points, Sino Biopharma +5.62%/+11 index points and Tencent +0.28%/+8 index points on news they will launch games based off of Nintendo’s Pokemon. AAC and Sunny Optical popped 3.6% and 2.91% on the feasibility of a face to face trade meeting coming. The HK stocks within the MSCI China All Shares gained +0.24% led by tech +1.96%, staples +1.88% led by auto makers and healthcare +1.11% on news of a tobacco use effort. Real estate was an outlier off -1.8% on fears the recent demonstrations will weigh on housing purchases while materials slipped -0.36%. Southbound Connect volumes were light though buyers outpaced sellers with Tencent seeing buyers beat sellers by not quite 1/3.

Shanghai & Shenzhen were flat all day until a late day rally led to gains of +0.45% and +0.88% as volumes fell 18% day over day and well off the 1 year average. Breadth was very strong with 2,916 advancers and 597 decliners as small and mid caps outpaced large caps. The mainland stocks in the MSCI China All Shares gained +0.35% led higher by tech +1.9%, industrials +0.94%, discretionary +0.91%, utilities +0.85% and healthcare +0.78%. Real estate was off -2.02% and staples off -0.65% after a liquor name had earnings that slightly disappointed. Several brokers have noted that investors might be rotating out of liquor names despite a favorable environment as it is considered a crowded trade. Connect volumes were light as foreign investors sold $58mm of mainland stocks. Kweichow Moutai and Ping An had nearly 2 to 1 selling though once again Shenzhen Connect had inflows. I have to wonder if foreign investors are pivoting to MSCI mid cap stocks which will be added to their indices in late November. I will do some work and report back!

New Oriental Education (EDU US) reported fairly solid Q4 and fiscal year results along with a strong Q1 outlook pre-market this morning. Competitor TAL Education (TAL US) reports Thursday pre-market.

  • Revenue +20.2% year over year to $842mm versus estimate $832mm
  • Adjusted EPS $0.60 versus estimate $0.64
  • Enrollment +33.9% YoY
  • Q1 Forecast $1.05B to $1.08B

Anta Sports (2020 HK) pre-announced their August 26th earnings release stating profits should increase at least 50%. The company had previously been accused by short seller Muddy Waters of cooking the books. The stock popped 1.2% last night having fully recovered the downdraft post the short seller’s accusation. 

BAIC Motors (1958 HK) announced an ownership stake of 5% in Daimler. The two companies have a JV in place dating back to 2005 according to the South China Morning Post

  • CNY 6.87 versus 6.88
  • Yield on 1 Day Chinese Gov’t Bond 2.1% versus 2.35%
  • Yield on 10 Year Chinese Gov’t Bond 3.15% versus 3.18%
  • Yield on 10 Year China Development Bank Bond 3.66% versus 3.66%
  • Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.96%