Daily Posts

“Official” PMIs, HK Hit by Typhoon and a Big Storm, AAPL/YUMC Earnings

Hope all is well! I had a family obligation this morning (camp drop off for the kids). Apologies for the late arrival.

Key News Overnight
Asian equity markets were risk off overnight as investors await today’s Fed decision and lack of significant progress in the trade talks. Expectations were low going into the talks, the fact that both sides appear to be pleased and agreed to a September meeting is a win in my book. HK’s afternoon session was cut short due to a significant typhoon hitting the island while demonstrations continued.
There have been significant government meetings taking place in China though they’ve not been widely reported in the media. Brokers are trying to gauge China’s policy response to the trade war. The economy is clearly slowing though a flood of stimulus isn’t coming as policy makers are accepting of a controlled slowdown. Targeted support will continue through fiscal and monetary policies. Real estate was the weakest performer overnight after the “housing is for living not speculating” was reiterated. Emphasis on domestic consumption will continue in order to offset weakness in export driven manufacturing.

July PMIs from the National Bureau of Statistics
Manufacturing 49.7 versus estimate 49.6 and June’s 49.4
Non-Manufacturing 53.7 versus estimate 54 and June’s 54.2
Takeaway: Manufacturing beat low expectations as China’s slowdown appeared to stabilize. Non-Manufacturing was also eerily stable as investors will wait for the IHS Caixin PMIs for confirmation. There could be a divergence between the two as the “official” PMI did show that small and medium companies contracted slightly in July while bigger companies fared better. The Caixin PMI only surveys smaller companies so our expectations around the Caixin August 4th release should be measured.

The Hang Seng ended the month with a thud -1.31%/-368 index points on light volumes despite the storm shortened session to close below 28k at 2,777. Breadth was weak with only 4 advancers and 46 decliners as index heavyweights AIA was off -2%/-58 index points, Tencent -1.34%/-39.8 and Ping An -1.84%/-29 index points. The HK stocks within the MSCI China All Shares were off -1.27% as discretionary was led lower by autos -2.22%, real estate -1.94%, staples -1.48% etc etc. Utilities managed a +0.53% gain. It is noteworthy that there was really no “news” just a plain old risk off day as sentiment continues to be poor as demonstrations continue. Mainland investors continue to buy low as buying exceeded selling by a small margin though volumes were light. For the month Hang Seng was off -2.68% though it “felt” worse due to the choppiness of trading.

The Shanghai & Shenzhen were off -0.67% and -0.68% on very light volumes and mixed breadth as 1,016 stocks advanced and 2,555 declined. Small and mid caps “outperformed” large caps as financials were weak. The mainland stocks within the MSCI China All Shares declined -0.78% led lower by real estate -2.89%, staples -1.08% as liquor stocks continue to see some rotation away from and financials -0.89%. Utilities and tech managed to end in the green +0.13% and +0.12%. Northbound Connect volumes were very light though the trend persists as Shanghai Connect had a slight outflow while Shenzhen Connect had a slight inflow. Kweichow Moutai had had sellers as foreign investors sold $72mm of mainland stocks. Shanghai was off -1.56% while Shenzhen managed a +0.57% gain in July.

Apple and Yum China released eerily similar Q2 earnings after the US close as both grew topline minimally year over year. The key for both companies was to convince investors to focus on a strong forecast which was a success. Both companies bought back shares which helps EPS and paid a dividend. Apple is obviously a much bigger company but if you took Apple’s name off the earnings release I wonder what the market’s reaction would be (YoY for the quarter revenue barely grew, gross margin contracted, operating expenses increased, net income declined, EPS declined = stock up). Semper Fidelis Tim Cook I suppose. For Yum, the company plans on 800 to 850 new stores in 2019 to fuel their growth.
Yum China (YUMC US)
Revenues grew 3% YoY to $2.12B versus estimate $2.17B
Revenue adjusted for CNY depreciation year over year would have been 10%
Adjusted EPS increased 28% to $0.46 versus estimate $0.39
178 news restaurants were opened raising the total to 8.751 within 1,300 cities (1,300 cities!!!)

Columbian President Marquez was in Beijing meeting with President Xi. I am sure commodities were topic #1 in the discussions though Venezuela’s dire situation may have been addressed. The lack of attention to what can only be described as a humanitarian crisis of massive proportions is disappointing to me on a personal level.

CNY 6.88 versus 6.88

Yield on 1 Day Chinese Gov’t Bond 2.17% versus 2.11%
Yield on 10 Year Chinese Gov’t Bond 3.18% versus 3.2%
Yield on 10 Year China Development Bank Bond 3.67% versus 3.68%

Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.21%.