Daily Posts

Live from Beijing Day 3: The Sky is The Limit When it Comes to Agricultural Purchases, Mainland Markets Await Clarity on Trade as the Rest of Asia Gains

Key News

Asian equities were mostly up following US gains on Tuesday with the exception of Mainland Chinese markets. Korea’s Kospi was up +0.71%, Japan’s Nikkei +1.2%, Singapore’s STI +0.59%, and the Hang Seng was up by +0.6%. Mainland markets were down slightly, likely due to China’s denouncement of US House measures backing Hong Kong protesters. As these measures were passed by congress and not the White House, it is hard to say what impact, if any, they could have on the Phase 1 trade deal.

The most significant trade news of the day is Trump’s announcement that China will purchase an additional $50 billion worth of agricultural goods within two years from the United States in exchange for tariff relief. Skepticism abounds regarding this number, but the fact remains that China needs to buy food from the US to offset swine flu, as yesterday’s reported CPI uptick demonstrates, and US farmers need to sell, as their increasing surpluses suggest. Agricultural trade is truly a win-win even though we may still be haggling over exact quantities.

Carrie Lam, in the first meeting of Hong Kong’s legislative council since July, was prevented by demonstrators from giving her address to the council. Those in attendance reiterated that they have five demands total and, therefore, cannot be satisfied by removal of the extradition bill alone. Once again, we are seeing that the source of discontent in Hong Kong is more nuanced than simply the Mainland exerting more control.

H-Share Update

The Hang Seng finished the day up by +0.61%, largely brushing off tensions at the city’s legislative council. The index was flat until mid-day and slowly climbed to a modest gain in the afternoon. Gains were probably influenced by US stock market gains and better-than-expected economic data coming out of the Mainland. Turnover in the index ticked up by 8.8% day over day and Northbound investors bought a net RMB 2.737bn of domestic stocks today, while Southbound investors bought a net HKD 1.121bn of Hong Kong stocks. Mainland property developers were propped up by positive economic data, loan growth, and news that the city of Tianjin would loosen property purchasing requirements. China Southern was a winner today after posting passenger traffic numbers above those of rival Air China, showing that the competition is heating up in China’s growing tourism and travel industry.

A-Share Update

Shanghai and Shenzhen finished lower at -0.41% and -0.38%, respectively, after opening higher in the morning only to close down on the day. Rising inflationary pressures demonstrated by the CPI uptick in September likely contributed somewhat to the market downturn on the day. But, let’s not forget that non-food prices rose by only 1% YoY in September, showing that inflation is very much limited to that caused by rising pork prices. China’s talk of “strong countermeasures” against the US Congress’ Hong Kong legislation also likely weighed on market sentiment. China’s markets have become far more inward-looking of late and therefore look to their government for sentiment signals, rather than to the US.

CICC upgraded COSCO Shipping (600026 CH) to outperform as it saw positive signs despite the sanctioning of the company’s Dalian branch. Shipping revenue performance is at a 30-year high due to risk outsized risk compensation on key Middle East routes following attacks on tankers in the Persian Gulf of late. CICC expects supply in the shipping industry to remain squeezed until 2021. COSCO Shipping now has a truly international network and owns and operates the Pireaus port in Athens, Greece. 

Lens Tech (300433 CH) announced that YoY net profit may grow 105% to 110% in the third quarter. The screen maker is profiting off of the demand for enhanced models for Android  smart phones and an increasing capacity utilization rate. CICC expects its stock to outperform.

Last Night’s Stats

  • USD/CNY 7.09 versus 7.08 yesterday
  • Yield on 1-Day Government Bond 1.84% versus 1.85% yesterday
  • Yield on 10-Year Government Bond 3.17% versus 3.17% yesterday
  • Yield on 10-Year China Development Bank Bond 3.58% versus 3.58% yesterday
KraneShares’ Institutional Investor Conference is underway in Beijing. Here, CEO Jonathan Krane discusses China opportunities with conference attendees.