Key News

Ministry of Commerce spokesperson Gao Feng’s comment that China would not raise tariffs in response to US tariffs, which are set to occur on Sunday September 1^st, is sparking a rally this morning. The comments occurred at 3:27am after mainland China’s equity market had closed but in time to cause late day rallies in Hong Kong, Taiwan, Malaysia and Indonesia. The comments followed Treasury Secretary Mnuchin’s comments that talks between the US and China would continue without providing any specifics. HK continues to suffer from poor sentiment as demonstrations continue while the HK economy declines.

Jack Ma and Elon Musk kicked off the World Artificial Intelligence Conference being held in Shanghai over the next few days by having an onstage conversation. The two spoke on a variety of subjects including AI, Mars, jobs, education and life. Musk’s comments were big picture while Ma’s were more grounded in my opinion. It is always a treat to hear two great minds having an unscripted conversation with one another.

H-Share Update

The Hang Seng was trading sideways though rallied in the last hour to close +0.34%/+88 index points to close.  At 25,703, volume was moderate and just off the 1 year average. Breadth was positive with 29 advancers and 19 decliners as index heavyweight AIA +1.73%/+47.7 index points, Sino Biopharma jumped +9.79%/+23.9 as the sell side upgrades and raises price targets following strong earnings while China Mobile -1.44%/-17.4 index points.  The HK stocks within the MSCI China All Shares gained +0.14% as healthcare ripped +3.77% thanks to Sino Biopharma’s gains. The healthcare sector continues to gain visibility as valuations and lack of exposure to the trade war continue to attract global investors. Utilities had a strong day +1.06% though real estate and staples -1.39% and -0.63%. Southbound Connect volumes were elevated as buyers outpaced sellers 2 to 1.

A-Share Update

The Shanghai & Shenzhen closed -0.1% and -0.17%, respectively, on decent volume just above the 1 year average accompanied by 1,439 advancers and 1,114 decliners. Mega caps slightly underperformed mid and small caps. The mainland stocks within the MSCI China All Shares were up +0.08%, led higher by communications, staples and tech +1.11%, 1.1% and +0.71%, respectively, while real estate was off 2.1% and utilities -0.76%. Brokers noted the effect of the AI conference on the technology and communications sectors. While the conference hasn’t garnered media attention here, it is front page news in China. Northbound Connect volumes were elevated as Shenzhen Connect volume exceeded Shanghai Connect. Foreign buyers barely outpaced sellers on both exchanges. In total, foreign investors purchased $53mm of mainland stocks.

With all the trade news swirling, we are hosting a webinar with CICC strategist Kevin Liu for an update on China’s economy and markets next Thursday morning. I invite you to tune in.

Last Night’s Stats

• CNY 7.14 versus 7.16; 24 bps point rally versus US $
• Yield on 1 Day Chinese Gov’t Bond 2.13% versus 2.13%
• Yield on 10 Year Chinese Gov’t Bond 3.0399% versus 3.0599%
• Yield on 10 Year China Development Bank Bond 3.56% versus 3.55%
• Commodities were mixed on the Shanghai & Dalian Exchanges with Dr. Copper flat +0.0%.