Investment Limits Denied by US Treasury Dept Saturday, PMIs Positive, Budweiser HK IPO
Asian equities were universally lower as Friday’s reports that the US may limit investment in China led to risk off sentiment. Hong Kong managed to diverge to the upside while Taiwan was closed due to a typhoon. Trade sensitive sectors such as technology were underperformers due to Friday’s news. Budweiser Brewing Co APAC (1876 HK) listed today on the HK gaining +4.44% with a full market capitalization of $47B. Alcohol stocks have been a favored sector for Asia investors of late, which the company is tapping into. Mainland China was weak on the US news, which was widely reported in China though investors likely raised vacation cash on the last day of trading for a week. It will be a slow week as Hong Kong is closed tomorrow and China is closed until next Tuesday. China’s trade team is scheduled to meet in the US next week.
US-listed Chinese companies and broad US equity markets fell on reports the administration is considering limiting Chinese companies’ ability to list in the US and index providers’ inclusion of mainland markets. The actual authority to do so is unclear as regulators are independent from the executive branch, though markets didn’t hesitate in their reaction. The S&P 500, with a market cap of over $26 trillion, lost -0.76% on Friday after the news hit the tape leading to a loss of nearly $200 billion, while the $1.2 trillion invested in US-listed Chinese companies suffered a significant percentage loss. However, the Treasury Department denied the report on Saturday. The irony, of course, is that the $1.2 trillion of Chinese market capitalization is owned by US investors. Several of our trading relationships desks noted the move was driven by algorithmic and high frequency trading as opposed to managers selling. The only people hurt on Friday were US investors.
The US is universally recognized as a global steward of the free movement of capital and such a policy would jeopardize that reputation. The idea should be called what it is: capital control, the antithesis of free market capitalism. Even the suggestion of such a proposal could have a lasting impact on foreign companies and capital invested in the US while US stock exchanges and investment banks are apt to suffer. Today it is China but who is next? The irony is US financial companies are gaining access into China’s mainland markets as several US asset managers now offer mutual funds in China, several US hedge funds offer alternatives to Chinese investors in China while US investment banks and institutional brokerage are buying out their joint ventures to operate independently in China. Finance is an area that China has opened up in a significant fashion and in which the country continues to grow and mature.
The Hang Seng gained +0.53%/+137 index points to close at 26,092 on volumes 38% higher than Friday though off the 1 year average. Breadth was strong with 34 advancers and 14 decliners as HSBC +0.83%/+22.6 index points, CCB +1.01%/+19.9 index points and China Mobile +1.33%/+16 index points. Food company Want Want China Holdings was the strongest performer +2.28%/+2.4 index points while trade sensitive tool maker Techtronic was off -1.18%/-2.8 index points. The Hong Kong stocks within the MSCI China All Shares gained +0.36% led by real estate +0.93%, staples +0.64%, energy +0.62%, financials +0.57% and communications +0.43%. Tech was off -0.5% and utilities -0.46%. Southbound Connect trading is closed.
The Shanghai & Shenzhen had a choppy trading day though a late afternoon sell off into the close led to a loss of -0.92% and -1.06% as volumes were off nearly -13% and well off the 1 year average. Breadth was poor with 1,049 advancers and 2,397 decliners as small and mid-caps underperformed large caps by a small margin. The mainland stocks within the MSCI China All Shares were down -1.3% as tech was hit hard -2.66%, financials -1.73%, communication -1.67%, staples -1.32% and industrials -0.97%. Energy and real estate were off -0.33% and -0.34%. Northbound Connect volumes were light as Shenzhen volumes exceeded Shanghai by a small margin. Shanghai had net inflows on the day despite sellers outpacing buyers on both exchanges by small amounts. Foreign investors sold -$88mm of mainland stocks on the day.
September PMI Data
|Manufacturing PMI||49.8 versus estimate 49.6 and August’s 49.5|
|Non-Manufacturing PMI||53.7 versus estimate 53.9 and August’s 53.8|
|Caixin Manufacturing PMI||51.4 versus estimate 50.2 and August’s 50.4|
The “official” PMIs were released just prior to the market open at 9:15am local time while the Caixin PMIs, which are calculated by IHS Markit, was released just after the market’s open. The “official” Manufacturing PMI is still below 50 meaning that it slowed at a slower pace than output, new orders, export orders, imports, input and output prices all firmed slightly month over month. The Non-Manufacturing PMI ticked down slightly as growth slowed slightly driven by export orders declining month over month while inventories also declined. The numbers were better than expected which helped HK overcome an initial loss while the mainland markets overlooked the PMIs and focused on Friday’s US reports on limiting investments in China.
Last Night’s Stats
- CNY 7.14 versus 7.12 Friday; CNY eases 29bps versus US $
- Yield on 1 Day Chinese Gov’t Bond 1.83% versus 1.75% Friday
- Yield on 10 Year Chinese Gov’t Bond 3.10% versus 3.11% Friday
- Yield on 10 Year China Development Bank Bond 3.69% versus 3.68% Friday
- Commodities were mixed on the Shanghai & Dalian Exchanges with Dr. Copper +0.60% .