Key News

Asian equity markets were a sea of green today with mainland China an outlier as traders took profits in advance of their three-day weekend. Hong Kong and China are closed Friday for the Mid-Autumn festival. China released the first of sixteen US goods exempted from tariffs and Premier Li had positive trade comments. Drug stocks were on the exclusion list though not US agriculture products, but the chatter says it is coming. The RQFII/QFII announcement had little effect on the mainland market. The biggest headlines occurred after the market’s close as China’s Money Supply and loan data came in. Tencent had a strong day in advance of Nasper’s Amsterdam listing of Prosus. The company bought back another 110k shares as they have grinded higher month to date.

Hong Kong Stock Exchanges and Clearing (HKEX) made a surprise bid to buy the London Stock Exchange (LSE) after the close. HKEX owns commodity trading bourse the London Metal Exchange (LME). I am a little surprised and skeptical that the deal goes through, but only time will tell. 

South African listed Naspers has traded at a historical discount to its assets comprised of investments in global internet companies including Tencent. In order to close the discount, CEO Bob van Dijk came up with a great idea. He suggested bundling the internet investments and listing them under the entity Prosus, which means forward in Latin, in Amsterdam. The listing should help close the discount though it has another effect. Unlike South Africa, The Netherlands is a developed market. As the third-largest company in the Netherlands and the second largest European tech company behind Germany’s SAP, Prosus, despite being comprised of EM investments such as Tencent and Russia’s Mail.ru, will be included in European and developed market indices. Managers who track indices such as the EuroStock 50 will be buying the stock over the next few weeks. I don’t know the value of flows though it should be a good backstop for the company in the short run. I will do more research today and provide a thorough analysis tomorrow.

The multi-asset team at T. Rowe Price, a trillion-dollar fund manager, urged investors to ignore overpriced US stocks and buy their cheaper Chinese peers instead. Thomas Poullaouec, head of Asia-Pacific multi-asset solutions, cited attractive valuations and stimulus as reasons to buy the dip in China equities.

H-Share Update

The Hang Seng had a strong day on improved sentiment gaining +1.78%/+475 index points to close at 27,159 as volume +18% day over day just below the 1 year average. Breadth was strong with 44 advancers and just 5 decliners as index heavyweights HSBC +3.14%/+85.5 index points, CCB +2.82%/+57/5 index points and Tencent +1.7%/+45.9 index points. Hang Seng Bank was the best performer +4.56% with several real estate companies right behind it. The HK stocks within the MSCI China All Shares gained +1.26% led by financials +2.18%, energy +1.59%, communications +1.52%, real estate +1.24%, materials +1.22$ and utilities +1.03%. Healthcare was off -1.51% and discretionary -0.47% as the only down sectors. Southbound Connect was closed in advance of Friday’s market holiday. 

A-Share Update

The Shanghai & Shenzhen were hit with a bout of profit taking off -0.41% and -0.94% as volume slipped -7% day over day though still above the 1 year average. One can’t help but notice the pick-up in volumes, which means retail investors are becoming more active. Liquidity and volume have been key signals historically, which I take as a positive sign. Breadth was off with 1,235 advancers and 2,291 decliners as large caps slightly outperformed mid and small-caps. The mainland stocks within the MSCI China All Shares declined -1.01% as financials +0.38% as the only positive sector as staples fell hard -4.05%, healthcare -20.1%, tech -1.64%, communication -1.6% and discretionary -0.71%. Northbound Connect volumes were strong as Shanghai Connect volume exceeded Shenzhen Connect with strong buying on the SH. Foreign investors bought $341mm of mainland stocks today following Monday’s $391mm and Tuesday’s $334mm.

August Data YoY

While inline with/slightly exceeding expectations, the data came after the market close. The market should view the releases as a positive catalyst. It highlights that stimulus policies are trickling down to the real economy.

Last Night’s Stats

• CNY 7.11 versus 7.10
• Yield on 1 Day Chinese Gov’t Bond 1.99% versus 2.09% 
• Yield on 10 Year Chinese Gov’t Bond 3.0499% versus 3.0449% 
• Yield on 10 Year China Development Bank Bond 3.59% versus 3.57%
• Commodities were mixed on the Shanghai & Dalian Exchanges with Dr. Copper off -0.34%.