September Economic Data Release, GDP = Going Down Progressively, Premier Li on IPO Protections, STAR IPOs Next Week
Asian equity markets eased on China’s GDP data due to the country’s economic influence on the region. Indonesia and India were the only positive performers. The market’s reaction is a little surprising because expectations had to be quite low. After all, we knew that GDP was going to stand for “Going Down Progressively”. Volumes were light, which may have been a factor, while next week’s STAR IPOs might be a small factor as investors raise cash to participate in the fourteen IPOs. The market’s reaction ignores the phase-one deal and potential for further positive steps in resolving the trade war. The chatter from both sides has been quite positive, though market sentiment is geared to the downside. Citic Bank reported quite robust earnings today as we enter Q3 earnings season. More to come on Monday on this topic.
Premier Li spoke about strengthening intellectual property protections as part of China’s continued opening up. There is chatter that China’s 4th Plenum meetings could begin as soon as this weekend, which means we will soon be updated on how the central government views growth and what it plans in future.
September Release – Year over Year
|GDP||6.1% versus estimate 6.0% and August’s 6.2%|
|Industrial Production||5.8% versus estimate 4.9% and August’s 4.4%|
|Retail Sales||7.8% versus estimate 7.8% and August’s 7.5%|
|Foreign Direct |
|3.8% versus August’s 3.6%|
|Fixed Asset Investment||5.4% versus estimate 5.5% and August’s 5.5%|
|Jobless Rate||5.4% versus estimate 5.5% and August’s 5.5%|
Takeaway: The 10am data release’s only number receiving any attention and labeled the culprit for today’s market swoon was the GDP figure. The disappointing GDP release has shaken investors’ belief that stimulus measures were making their way into the real economy. While IP and retail sales exceeded expectations, several brokers noted that the GDP release needs to be combined with increasingly poor global economic data that is likely weighing on China’s economy. This ignores policy makers continued focus on counter cyclical measures to offset weakness in exports.
The Hang Seng fell -0.48%/-128 index points to close at 26,719 as volumes +6% day over day though well off the 1 year average. Breadth was weak with only 7 advancers and 39 decliners as CCB -0.79%/-16.3 index points, AIA -0.53%/-13.5 index points and ICBC -1.09%/-13.3 index points. CSPC Pharma +2.96%/+7.3 lead the day while China Mengniu Dairy -3.12%/-8.1 index points was the day’s worst performer. The Hong Kong stocks within the MSCI China All Shares Index declined -0.34% as defensive plays healthcare and utilities gained +0.57% and +0.37%. The consumer staples category was off -1.08%, materials -0.85% , financials -0.84% and energy -0.68%. Southbound Connect volumes were moderate with buyers slightly outpacing sellers as volume leader CCB had buyers, CM Bank was sold 10 to 1 and Tencent bought 3 to 1.
The Shanghai & Shenzhen had an awful day slumping -1.32% and -1.17% as volume picked up 14.8% day over day, but were still ~15% off the 1 year average. Breadth was atrocious with only 608 advancers and 3,048 decliners as large caps were the steepest decliners (-1.5%) while mid-caps (-1%) and small caps (-0.6%). The market cap move defies financial logic as small caps should have more beta to than large caps, but sector exposure was the primary factor in stock moves. The mainland stocks within the MSCI China All Shares declined -1.31% led lower by financials -1.82%, real estate -1.8%, tech -1.72%, industrials -1.35%, energy -1.32%, communications -1.3%, materials -1.11% and discretionary -1.05%.
Healthcare “outperformed” by falling a mere -0.35% with staples off -0.75%. Northbound Connect volumes were moderate as foreign investors sold Shanghai and bought Shenzhen names, though the selling outpaced buying. MSCI inclusion stocks Kweichow Moutai and Ping An were both sold down as foreign investors sold $175mm of mainland stocks. For the week, foreign investors bought $1.355 billion of mainland stocks.
Last Night’s Prices/Yields
- US $/CNY 7.08 vs. 7.08 yesterday
- Euro/CNY 7.89 vs. 7.87 yesterday
- Yield on 1-Day Government Bond 1.76% vs. 1.73% yesterday
- Yield on 10-Year Government Bond 3.19% vs. 3.16 yesterday
- Yield on 10-Year China Development Bank Bond 3.58% vs. 3.57% yesterday
- Commodities were mixed on the Shanghai & Dalian Exchanges with Dr. Copper +0.17% .