There are No Islands in The Global Economy
Asia was a sea of red following the US equity market’s reaction to the poor ISM release yesterday and Europe’s disappointing data release on Monday while North Korea firing a submarine-launched missile only added to poor market sentiment. While mainland China and India were closed, South Korea, Singapore and Indonesia were off more than 1% while Japan, Malaysia and Thailand lost nearly 1%. Taiwan and Hong Kong were off -0.18% and -0.19%. Hong Kong was down -1.2% in the morning though managed an afternoon rally despite a protester being shot on Tuesday and August retail sales declining -23% year over year. One bright spot appears to be Apple-related stocks as new iPhone 11 sales are rumored to be strong.
While the GM strike likely impacted the Manufacturing ISM, the new export order category pulled a Thelma and Louise (off a cliff). With ADP’s employment release disappointing this morning and Friday’s Labor Department employment report to be released, it raises the potential for a Fed cut though the Fed can only do so much as the self-inflicted trade war is contributing to a global economic malaise. The current economic situation places a higher emphasis on next week’s US-China trade talks. While US rhetoric has taken a hardened stance recently, one might assume this is a negotiating tactic as maintaining the trajectory would be non-sensical. We often note China wants a trade deal in order to focus on its domestic agenda (SOE reform and deleveraging being at the top of the list). Yes, the US equity market is near an all-time high, but we are entering Q3 earnings season in two weeks just as economic data points to weakness. The global economy may need a deal now more than ever.
The Hang Seng eased -0.19%/-49.5 index points to close at 26,042 on light volumes off -15% from Monday and well off the 1-year average. Breadth was positive with 27 advancers and 19 decliners though index heavyweights Tencent was off -1.57%/-39.9 index points and HSBC -1.24%/-33.2 index points while AIA +0.41%/+10.2 index points. Real estate names were the Hang Seng’s best performers with New World Development +2.75%/+5.3 index points. Household product maker Hengan International was the worst performer -2.24%/-2.4 index points. The Hong Kong stocks within the MSCI China All Shares lost -0.27% as tech rallied +0.96%, utilities +0.36%, industrials +0.33% and real estate +0.31%. Tencent pulled down communications -0.99%, materials -0.73%, staples -0.64% and energy -0.41%. Southbound Connect is closed.
Shanghai & Shenzhen Stock Exchanges – Closed
Stocks to Watch
Several brokers noted that Budweiser Brewing APAC (ticker 1876) will likely be fast-tracked for index inclusion. As a Hong Kong domiciled company, I would assume that it would included in developed market indices. I was intrigued by their Hong Kong ticker which led me to discover it was the year Budweiser was renamed to Anheuser-Busch Brewing from E. Anheuser Brewing.
Tencent (700 HK) bought back another 110,000 shares today. Management is taking a dollar cost averaging approach versus trying to time the bottom, which is a great strategy when in investing in volatile markets.
Meituan Dianping (3690 HK) had another strong day +1.75% in HK. The company’s strong earnings have led to an impressive 85% return YTD.
- CNY 7.14 versus 7.12 Friday
- 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%.