Daily Posts

Bank RRR Cut (After the Market’s Close), China YTD Stellar Performance Missed by Market as Investors Sell

Yesterday we hosted a webinar with CICC strategist Kevin Liu providing a trade war scenario analysis and our economic outlook. Click here to view a replay.

Key News

The Reserve Requirement Ratio is the amount of deposits banks need to hold on their books. By cutting the ratio to 13% from 13.5% effective Sept 16th it allows banks to increase lending by $126B (RMB 900B). The news hit after the market closed. As we discussed on yesterday’s webinar, policy makers are implementing “counter-cyclical adjustment” ie stimulus in order to offset the trade war’s effect on the economy. Other measures implemented include cutting the VAT tax, cutting red tape and ensuring private companies can access capital.

Asia followed the US equity market higher. US China trade talks will occur in October as volumes ran hot in HK due to the Hang Seng Indices rebalancing. A major global investment bank’s morning note had an interesting tidbit. What’s the best performing country YTD? Mainland China! Who would have thought! This got me curious on how investors must be capitalizing on this. Evidence suggests not that much! YTD flows into US-listed Chinese equity ETFs: -$1.29 billion. YTD flows into Chinese equity ETF globally: -$10.09B. Investors are redeeming as the market rises. Interesting! After writing this I’ll filing the mass of compliance paperwork required for me to buy in my personal account. I suspect/hope it will be a profitable endeavor!

This weekend August trade data and FX reserves are expected to be released.

H-Share Update

The Hang Seng grinded out a gain of +0.66%/+175.2 index points to close 26,690 as volumes surged 20% driven by the HSI index rebalance as 38 stocks advanced and 10 decliners. AIA led the charge higher +1.46%/+42.1 index points, HSBC +0.7%/+16.9 index points and Tencent +0.59%/+16.2 index points. Today’s best performer were Apple suppliers AAC and Sunny +2.94%/2.6 index points and +2.74%/6.8 index points pre the suspected Apple launch release and thawing in trade talks. The worst performers were healthcare names Sino Biopharma and CSPC Pharma -3.22% and -3.02%. The HK stocks within the MSCI China All Shares +0.53% led by tech +2.05%, discretionary +1.44%, industrials 1.24% and energy +0.88%. Utilities and healthcare were off -1.68% and -1.21%. Southbound Connect volumes were moderate with buyers outpacing sellers as CCB and Tencent had buyers outpace sellers by a thin margin. 36 days of buying in a row!

A-Share Update

The Shanghai & Shenzhen gained +0.46% and +0.36% as volumes 20% after yesterday’s surge. Breadth was mixed with 1,553 advancers and 1,936 decliners. Mega/large caps outperformed mid and small ~40-50bps. The mainland stocks within the MSCI China All Shares gained +0.89%  led by healthcare +1.39%, tech +1.38%, discretionary +1.35%, communications +1.34%, financials +1.33% and real estate +0.85%. Staples were off -0.28%. 5G and trade names were strong while gold stocks underperformed. Northbound Connect flows were moderately high though buyers were active! Shanghai volumes and buying outpaced Shenzhen which has become a short term trend. Foreign investors bought $1.198B of mainland stocks yesterday. Big week for foreign buying as it totals $3.9 billion! Wow!

Weekly Return (US $)

Hang Seng           +3.76%

SH Comp              +3.93%

SZ Comp              +4.95%

One of my favorite stats from our webinar yesterday: foreign investors now own $280 billion of Chinese bonds versus a mere $56 billion 5 years ago. Foreign investors’ ownership of mainland Chinese equities has grown from $50B to over $225B today. 

Alibaba is paying $2B for NetEase’s Kaola e-commerce unit. More importantly, the companies agreed to work on other initiatives. Could Alibaba be getting cozy with arch-rival Tencent’s fellow gaming competitor NetEase? Reminds me of the saying “my enemy’s enemy is my friend”. 

Last Night’s Stats

  • CNY 7.12 versus 7.14; 37bps rally versus the US $
  • Yield on 1 Day Chinese Gov’t Bond 2.08% versus 2.16% 
  • Yield on 10 Year Chinese Gov’t Bond 3.0449% versus 3.0424% 
  • Yield on 10 Year China Development Bank Bond 3.55% versus 3.56%
  • Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper off -0.13%.