Deleveraging Strong, Poetic Pause in Hong Kong & Tsingtao Gives Markets a Buzz
FX and Bond Update
The PBOC released more data suggesting the continuing success of deleveraging efforts despite quantitative easing. July data suggest that deleveraging is weighing ever more on the expansion of the credit cycle in China. However, bank reserves were down by RMB 1.18 trillion in July. The decline in reserves is likely due to both the relaxing of reserve requirements for larger banks and smaller banks’ having fewer positions to back up with high reserves. Government deposits increased by RMB 607 billion and the PBOC’s FX purchase positions were down by $0.7 billion in July.1 The RMB ended the day at 7.04 RMB/USD versus Thursday’s 7.02 RMB/USD.2
The CEO of Cathay Pacific, Rupert Hogg, resigned on Friday after the company came under pressure from Beijing for the involvement of some of its employees in protests in Hong Kong. The executive said he was stepping down “to take responsibility as a leader of the company in view of recent events.” Paul Loo, the company’s chief customer and commercial officer, resigned as well. The Wall Street Journal reported that both men were replaced, but the article did not say by whom.3
Hong Kong ended the day slightly higher following minor gains on Wall Street yesterday. The Hong Kong’s government’s announcement of a stimulus package to the tune of $2 billion may have influenced gains and brought some calm to the city. Hong Kong billionaire Li Ka-Shing published advertisements in many of the city’s newspapers yesterday advocating for an end to unrest “in the name of love.” His eloquent statements drew from a Tang dynasty poem about the withstanding stress. Tensions and unrest in the city have subsided significantly.4
Insurers lead gains on the Hong Kong market. Ping An Insurance’s H-shares were up by 2%. The company posted solid results for the first half of 2019. Ping An benefitted from significant investment income and a one-time change in tax policy. Other leaders included Tsingtao Brewery and Macau gaming names such as Wynn China. CICC notes that they were 2x buyers of H-shares overall and sellers of mostly auto names.1
The Shanghai Composite gained slightly on Friday. Leading gains among A-shares were Ping An Insurance (+1.33%), Tsingtao Brewery (+10.01%), and Goertek. Ping An Insurance acquired 20 million new customers in the first half of 2019, a third of which came from its online platforms. Shares in Goertek gained by 0.57% on Friday following the release of the latest Huawei device, for which Goertek has rolled out numerous accessories such as earphones. Tsingtao Brewery had the most impressive winning streak among A-shares on Friday. The company saw net profit increase by 9.2% in the second quarter.1 However, sales growth for the company’s high-end brands still disappoints and overseas sales are still lagging. Nonetheless, given the recent profit increase, we believe the stock has room for immense growth in the business lines that are currently lagging. Kweichow Moutai, another beverage name, was up 0.93%.
Last Night’s Stats2
- Hang Seng Index: +0.94%
- Shanghai Composite: +0.29%
- Caixin PMI: 49.9 for July
- China Development Bank 10-Year Yield: 3.41%
- China Government 10-Year Bond Yield: 3.01%
- MSCI China All Shares: +0.56%
- MSCI China Financials: +0.45%
- RMB Spot Rate: 7.04 RMB/USD
- HKD Spot Rate: 7.84 HKD/US
- Nguyen, Tom. “Good Morning China from CICC,” CICC Sales & Trading. August 16, 2019
- Data from Bloomberg as of August 16, 2019
- Khan, Natasha. “Cathay Pacific CEO Resigns After China Backlash Over Hing Kong Protests,” The Wall Street Journal. August 16, 2019.
- Chung-Yan, Chow. “Hong Kong tycoon Li Ka-shing’s poetic call for peace,” South China Morning Post. August 16, 2019.