Positive News: Clouds Parting or Eye of the Hurricane, SINA/WB Report this Morning, $1.1B of Connect Inflow
Hope you had a great weekend!
As a child, Hurricane Gloria hit Connecticut leading to several hours of high winds followed by an incredible calmness. As my sisters and I ventured outside and explored the tree damage, we quickly discovered that the storm wasn’t over yet, and that we were still in the eye of the storm. Only time will tell if the multitude of positive developments in the last 72 hours are the start of an improved trend (my hope) or a temporary reprieve.
China Trade Talk Developments
- Huawei received this morning a 90 day reprieve from the U.S. Department of Commerce
- Tim Cook’s dinner conversation with President Trump included a brief synopsis on how tariffs are negatively impacting Apple, while providing a competitive advantage to its main rival Samsung
- President Trump had relatively positive comments on trade talks, which were reiterated by advisors Kudlow and Navarro on the Sunday morning TV circuit
China Policy Developments
- China’s Greater Bay Area is comprised of cities around the Pearl River estuary including Hong Kong, Macau, Shenzhen and Guangdong. Over the weekend, it was announced in a nineteen-point plan that Shenzhen will take a greater role in the development of the Greater Bay Area mainly through investments in technology, infrastructure and telecommunications
- The People’s Bank of China (PBOC) announced a “stealth” easing measure through reforming the Loan Prime Rate (LPR) and setting it as the new index rate for corporate loan pricing. The objective is to make interest rates adjustment a more regular and market-oriented process, which should help jumpstart loans to small and medium enterprises and likely lower borrowing cost
The Hang Seng gained 2.17% adding 557 index points to 26,291 on strong volume (above the 1 year average) and strong breadth of 46 advancers and 4 decliners. Index heavyweights Tencent gained 3.19% and contributed 86.5 points to the index, AIA was up 2.96% and added 83.6 index points and HSBC gained 2.57% adding 62.6 index points. Noodle maker Want Want (151 HK) had a strong day after being added to the Hang Seng China Enterprise Index (HSCEI). The company closed 6.61% higher adding 7.2 index points. Hong Kong stocks in the MSCI China All Shares Index gained 2.13% led by real estate (+4.67%), healthcare (+3.87%), technology (+3.66%), and communication services (+2.54%). Utilities was the only losing sector (-0.45%). Southbound Connect volumes were moderate while mainland buyers were active. Volume leader China Construction Bank (CCB) experienced a 10 to 1 ratio of buyers to sellers.
The Shanghai & Shenzhen markets gained 2.1% and 3.05% on volume 36% higher compared to Friday and well above the 1 year average. Breadth was exceedingly strong as 3,537 stocks advanced and only 132 declined. It was a broad rally as brokers benefited from the implementation of new margin rules, which should help liquidity for mainland stocks. Technology helped propel small- and mid-caps to slight outperformance relative to large caps. The mainland stocks within the MSCI China All Shares Index gained 2.14% led by gains in tech (+4.42%), real estate (+3.1%), communication services (+3.08%) and industrials (+2.49%). Although all sectors were in the green, Staples gained only 0.29% as liquor names underperformed. Stock Connect volumes were strong with $1.1B of mainland stocks were bought. Shenzhen Connect volumes outpaced Shanghai Connect volumes though both had a very strong day.
While there were no additions to the Hang Seng Index, the HSCEI, which tracks Chinese companies listed in Hong Kong, added Want Want, Geely, Fosun, Sunac and China Taiping.
Sina and Weibo both reported strong earnings pre-market this morning. Sina spun out Weibo though still owns a large percentage of the company. The news portal’s revenue is largely determined by the “Twitter” of China.
Sina Q2 Year over Year
- Revenue -1% to $533mn from $537mn but exceeded analysts’ estimate $510mn
- ADJ EPS $0.76 per share versus estimate $0.50
Weibo Q2 Year over Year
- Revenue +1% to $431mn versus estimate $430mn
- ADJ EPS $0.68 per share versus estimate $0.58
- Monthly active users increased 55mn to 486mn
- Q3 revenue growth forecast +6% to 9%
Baidu & IQ will report after market close today.
CNY 7.05 versus 7.01
- Yield on 1 Day Chinese Gov’t Bond 2.11% versus 2.01%
- Yield on 10 Year Chinese Gov’t Bond 3.04% versus 3.02%
- Yield on 10 Year China Development Bank Bond 3.51% versus 3.52%
- Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper +0.09%.