Daily Posts

Dull Day, PepsiCo Buys Stake in Chinese Food Company, Starbucks China Sales Rise


Key News Overnight
Asian equity markets followed the US down though mainland China and India managed to end in the green. It was a quiet night on the news front as STAR board stocks gave back some gains, MGM China beat sell side expectations, Premier Li gave positive comments on healthcare and HK demonstrations took place at the airport. The HK demonstrations continue to impact sentiment though retailers and real estate are facing economic impact. Lackluster volumes this week suggest investors want a positive outcome from US China trade talks next week in Shanghai. Some of suggested that the talks talking place in Shanghai versus Beijing, the talks will be business focused than political.
Online marketing company Weimob (2013 HK), similar business strategy as BZUN, announced a private placement raising $180mm though at a discount of nearly 10%. While the stock fell -12.13% overnight, it turns out the buyers of the placement were Tencent, Singapore sovereign wealth fund GIC and BlackRock. I would expect the stock to rebound Monday.

The Hang Seng declined into the closing bell (gong) -0.69%/-196 index points at 28,397 losing -1.28% on the week. Volumes continued to languish flat day over day and wot1ya (well off the 1 year average) as only 5 stocks advanced and 44 declined. Index heavyweight AIA was off -1.58%/-47.9 index points, Tencent -0.59%/-17.6 ip, and HSBC -0.62%/-16.7 ip. The HK stocks within the MSCI China All Shares declined -0.82% as healthcare declined -1.72%, staples -1.47%, tech -1.4%, and industrials -1.24%. Financials “outperformed” falling -0.48%. Southbound Connect volumes were light in mixed trading though volume leader Tencent saw 5 to 1 buys versus sells from mainland investors (again).

The Shanghai & Shenzhen managed an end of the day rally to gain +0.24% and +0.04% though volumes were anemic -10% day over day and wot1ya. Breadth was mixed with 1,498 advancers and 1,926 decliners as large and mid outperformed small caps. The mainland stocks within the MSCI China All Shares gained +0.15% as utilities +0.88%, industrials +0.8%, healthcare +0.47% and tech +0.28% while communications -0.31%, staples -0.23%, real estate -0.1% and financials -0.07%. Northbound Connect volumes were weak as Shanghai Connect had a slight outflow as volume leaders Kwechow Moutai and Ping An had 3 to 1 sellers while Shenzhen Connect had sellers outpace buyers by a very small margin. In total foreign investors sold $201mm of mainland stocks on the day. For the week foreign investors bought $377mm of mainland stocks.

There were two interesting item related to the Chinese consumer.
Natural Food International Holding (1837 HK) gained 14% after PepsiCo announced it is taking a 25.8% stake in Chinese natural health food maker for $131mm becoming the company’s second largest shareholder.
Starbucks (SBUX US) released earnings yesterday noting that China comparable store sales increased 6% with transactions up 2%.

CNY 6.87 versus 6.87

Yield on 1 Day Chinese Gov’t Bond 2.12% versus 2.12%
Yield on 10 Year Chinese Gov’t Bond 3.18% versus 3.18%
Yield on 10 Year China Development Bank Bond 3.67% versus 3.67%

Commodities were mixed on the Shanghai & Dalian Exchanges with Dr. Copper flat/0.0%.