Daily Posts

Let’s Make a Deal (and not a Truce)

Key News

Asian equities were mixed with Korea and India gaining while HK and mainland markets were off with Japan on holiday. The mainland market was off on profit taking following the US equity market’s move down on Friday following President Trump’s statement that he wants a full deal, not a truce. A China delegation also cancelled a Montana farm visit. A couple days ago I articulated a nice thesis on why a truce would be easier than a deal. While China and Hong Kong didn’t reflect it, there was positive chatter on last week’s trade talks over the weekend from both sides. There was also clarification that the Montana trip was tentative/not confirmed. A lack of positive catalysts, extensive media coverage on the Montana farm trip, and continued poor sentiment weighed on both China and Hong Kong as Golden Week approaches.

Last week I had the opportunity to spend time with a Beijing based equity strategist visiting the US after he had visited with institutional investors in Shanghai. He felt that mainland investors have a neutral position on trade talks and are increasingly focused on domestic policies. The strategist believed that this shift reflects a realistic view of trade talks, reflected by trade news now taking a backseat to domestic news. While today’s market action might contradict such a view, the realistic view of trade talks is interesting. I am meeting with a Shanghai-based institutional strategist today. I’ll report back with their views tomorrow.

H-Share Update

The Hang Seng declined -0.81%/-213 index points on volumes off -30% from Friday’s S&P/FTSE index rebalance and well below the 1-year average. Only 5 stocks advanced and 42 declined as HSBC declined -0.83%/-22.2 index points, AIA -0.73%/-18.6 index points, and Ping An -1.03%/-15.9 index points. Apple supplier AAC and Sunny Optical were hit by disappointing trade results -5.9% and -4.76%. The Hong Kong stocks within the MSCI China All Shares declined -0.97% as Tencent -0.53% helped communication sector fall only -0.41% though tech -2.54%, real estate -1.88%, health care -1.7%, materials -1.62%, industrials -1.45% and discretionary -1.26%. Southbound Connect volumes were moderate as mainland investors were net sellers though volume leaders CCB and Sunny Optical saw buyers outpace sellers.

A-Share Update

The Shanghai & Shenzhen declined -0.98% and -0.91% as volumes declined -7% from Friday and still above the 1 year average. Breadth was poor with 687 advancers and 2,962 decliners as the decline was uniform across market caps. The mainland stocks within the MSCI China All Shares -1.61% real estate -2.25%, health care -2.08%, industrials -1.91%, staples -1.78%, materials -1.7%, financials -1.67% and discretionary -1.55%. Tech held up a modest -0.53%. Northbound Connect volumes were moderate while investor flows diverged between Shanghai and Shenzhen as foreign investors were sellers of the former and buyers of the latter as MSCI heavyweights Kweichow Moutai and Ping An had sellers outpace buyers. Despite the Shenzhen Connect buying, foreign investors sold a net -$214mm.

Alibaba’s Investor Day kicked off today which will include management speeches and guidance on the quarter.

On Friday I mentioned APLT (Applied Therapeutics) as a stock to watch as it was being added to the Russell 2000 index. I cautioned that I couldn’t predict if it would go up or down but to concentrate on volumes. It turns out the stock popped 7.24% so maybe we should have bought it. However, gaming index rebalances can be tricky. The stock averaged 14k shares daily over the last 30 days though on Friday it traded 143k as the stock traded from an intra-day low of $9.60 before going vertical at the close at $10.52. The power of passive was fully on display.

Last Night’s Stats

  • CNY 7.12  versus 7.09 yesterday
  • Yield on 1 Day Chinese Gov’t Bond 1.97% versus 2.07% Friday
  • Yield on 10 Year Chinese Gov’t Bond 3.09% versus 3.09% Friday
  • Yield on 10 Year China Development Bank Bond 3.65% versus 3.65% Friday
  • Commodities were mixed on the Shanghai & Dalian Exchanges with Dr. Copper -0.21% Friday