Positive Golden Week Data & Pre-Negotiation Drama
Asian equities were broadly higher as Mainland China returned in good spirits following positive Golden Week consumption data. China and Asia shrugged off reports that came after US market close that the US is blacklisting 8 additional Chinese companies from buying US technology. The blacklist had a muted affect as mostly small-scale surveillance firms, which were already under consideration for blacklisting, were named. However, after China markets closed, the South China Morning Post reported that Liu He, the Chinese trade representative, would be arriving in the US without ‘special envoy’ status, essentially downgrading the level of trade talks. Subsequently, this morning reports resurfaced that the Trump administration was considering limiting US federal pension funds’ investments in China. Today, US markets are reacting negatively to the news, but could this simply be pre-negotiation drama?
While there have been rumors that the White House is considering limits on US pension funds’ investments in China, no actions have been taken. We previously mentioned this seemed slightly more feasible than placing restrictions on US listed Chinese companies, whose $1.2 trillion in market cap is held primarily by US investors. A group of congressmen, China hawk Marco Rubio key among them, sent a letter to the Federal Retirement Thrift Investment Board asking them to reverse their previous decision to allocate to Chinese securities as they are included in global benchmarks. The FRTIB is still allocating to Chinese A-Shares. It is important to note that the current discussion is limited to federal pension funds.
The Ministry of Culture & Tourism reported that the number of trips during Golden Week increased +7.8% from last year to 782 million trips while tourism revenue rose +8.47% to $90.9 billion (CNY 650B). There were 7mm overseas trips.
The Hong Kong Exchange (HKeX) dropped its bid for the London Stock Exchange (LSE) overnight leading to a rally in the stock. The HKeX wasn’t willing to sweeten its initial offering after it was rejected by the LSE who harshly noted that it would rather a tie up with the Shanghai Stock Exchange based on their belief it is the future financial center of China.
|Caixin China PMI|
|Composite||51.9 versus August’s 5.16|
|Services||51.3 versus estimate 52 and August’s 52.1|
|$3.092 trillion versus estimate $3.105 trillion and |
August’s $3.107 trillion
Takeaway: FX reserves had a minor decline following a minor increase in August though markets seemed uninterested in both releases candidly. The Services PMI had a slight downtick, but remains in expansion territory, albeit at a slower pace as higher input prices offset stronger new orders.
NBA broadcasts were cancelled following comments from the Houston Rockets GM on the Hong Kong demonstrations. The NBA usually steers clear of politics and NBA commissioner Adam Silver stated that, while he cannot police speech, his league remains neutral on political issues. China has been a key growth market for the NBA for decades given Chinese affinity for basketball. We expect that broadcasts will resume soon.
The Hang Seng was up +0.28% last night after re-opening following the conclusion of Golden Week celebrations. The market hit an 11 AM high and then contracted to close at 25,893. Hong Kong retailers continue to suffer due to continuing demonstrations and their impact on tourism, but will likely see a boost in sentiment following Golden Week travel numbers. The number of Mainland visitors to Hong Kong was down -50% for the first 6 days in October. Northbound connect had net buyers, while Southbound connect had net sellers. Among the leaders on Tuesday were HKEX, +2.3% upon withdrawing bid for LSE, and Geely Automotive +2.6%, following optimism for auto sales following a troubled few months for the industry, and Chinese Banks such as ICBC, +1.36% upon optimism from new loan data and September money supply figures.
Shanghai and Shenzhen were up +0.29% and +0.22%, respectively, following positive Golden Week spending and optimism for Thursday’s trade negotiations. Mainland markets moved inverse to US markets, which were largely down on Monday. Northbound connect flows were north of $244 million. Among the leaders were Kweichow Moutai, +1.49% on Alibaba data showing that more than 3 million participated in a rare promotional price for the company’s products on the site, and Ping An Insurance, +1.1% on loan growth data. Power, mechanics, and construction sectors were all higher upon optimism surrounding stimulus.
Last Night’s Stats
- CNY 7.14 versus 7.14 Tuesday Sept 30th
- Yield on 1 Day Chinese Gov’t Bond 1.93% versus 1.83% Tuesday Sept 30th
- Yield on 10 Year Chinese Gov’t Bond 3.12% versus 3.14% Tuesday Sept 30th
- Yield on 10 Year China Development Bank Bond 3.52% versus 3.60% Tuesday Sept 30th
- Commodities were mixed on the Shanghai & Dalian Exchanges with Dr. Copper -0.49%.