Key News

Asian equities followed the US equity market south following the announcement of a Democratic impeachment inquiry and President Trump’s hardline on China taken in his UN address. Global trade bellwethers South Korea and Singapore were among the hardest hit while China and Hong Kong were also off. Tech was universally the worst regional performer while Hong Kong and China healthcare were off as they absorbed the national drug procurement auction news. Yesterday’s speech by PBOC Governor Yi Gang that a massive stimulus isn’t being deployed likely weighed on the market while investors potentially raise cash before the Golden Week holiday next week.

Despite President Trump’s rhetoric, there was a brief rally on news China will buy up to 100,000 tons of US pork though markets sold off into the close. While the gesture is driven by the rise in China’s pork prices due to the African swine flu, it shows there are areas of mutual benefit that can lead to a wider dialogue. China’s trade envoy is still expected to visit the US in two weeks. Japan was alone in coming off the day’s lows though was still down on the day. China’s Foreign Minister Wang spoke in NYC last night calling for stronger US-China relations as the two economies are inseparable and a decoupling would be problematic for both countries. 

Nike (NKE US) reported fiscal year Q1 earnings after the US close yesterday which beat analyst expectations. While revenue grew 7% year over year, Greater China powered results growing 22% YoY. Relative to other geographic sectors the China results are outstanding as North America revenue +4%, Europe/Middle East/Africa (EMEA) revenue +6% and Asia Pacific/Latin America +6%. Earnings before interest and taxes (EBIT) year over year were equally impressive as Greater China +33%, EMEA +22%, North America +2% and Asia Pac/Lat Am +6%. Nike’s results reaffirm that reports of the Chinese consumer’s decline are greatly exaggerated.

H-Share Update

The Hang Seng fell -1.28%/-335 index points to close at 25,945 on slightly higher volumes from yesterday though well off the 1-year average. Breadth was awful with only 3 advancers and 47 decliners as index heavyweights Tencent -2.15%/-54.9 index points, AIA -2.04%/-51.7 and HSBC-0.92%/-24.4 index points.  Pharma names Sino Biopharma and CSPC Pharma were off -5.34% and -3.69% with Apple suppliers AAC and Sunny Optical off -3.12% and -3.01%. The Hong Kong stocks within the MSCI China All Shares lost -1.22% as healthcare -2.91%, tech -2.72%, communication -1.7, energy -1.51% and utilities -1.07%. Discretionary was the best sector -0.39%. Southbound Connect volumes were light, but buyers were active as the top volume leaders (CCB, Ping An, Tencent and Sino Biopharma) all saw more buying than selling. CSPC Pharma did see more sellers than buyers.

A-Share Update

The Shanghai & Shenzhen declined 1% and -1.61% on volumes of 5% day over day though above the 1-year average. Breadth was atrocious with only 565 advancers and 3,079 decliners as large caps held up ~1% better than mid- and small caps. Financials were fairly resilient on the day which one mainland broker called “tragic”. The mainland stocks within the MSCI China All Shares lost -1.1% as tech -3.49%, utilities -2.03%, communications -.87%, discretionary -1.5%, industrials -1.11%, healthcare -1.09% and energy -1.01%. Financials were off -0.23%. Northbound Connect volumes were moderate/light though Shenzhen Connect volumes and buying exceeded Shanghai Connect volumes. While Shanghai trading was balanced on the day, Shenzhen had more buyers than sellers. Foreign investors bought $69mm of mainland stocks on the day. 

I am not a crypto investor though many on the sell-side noted Bitcoin’s tumble yesterday. I would assume PBOC Governor Gang’s comments on China not pursing a digital currency was the culprit though hard to say definitively.

China EV maker Nio (NIO US) fell -20.22% after reporting a loss of $464mm yesterday. Adding insult to injury they didn’t hold an earnings conference call. Houston, we have a problem….

Pinduoduo (PDD) was off 8.37% following their convertible note announcement though yesterday was a good ol’ fashion risk-off day. One sell side broker felt algo/HFT was a major driver of volumes as opposed to “real” money/buy-side managers.

Tencent (700 HK) bought back another 110k shares on Tuesday for 19^th time since August 29^th.

Retailer Forever 21 became just 21 after closing its last HK store citing depressed retail traffic.

Last Night’s Stats

• CNY 7.12  versus 7.10 yesterday, loses 11bps to the US $
• Yield on 1 Day Chinese Gov’t Bond 1.65% versus 1.97% yesterday
• Yield on 10 Year Chinese Gov’t Bond 3.10% versus 3.09% yesterday
• Yield on 10 Year China Development Bank Bond 3.67% versus 3.65% yesterday
• Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.13% .