Key News

Asian equity markets had a strong day except for India, which was an outlier by declining on the day, and Japan, which was closed. Hong Kong and Mainland China had the dual tailwinds of continued positive coverage of trade talks and the PBOC’s injection of liquidity into the interbank market. It was a fairly quiet day with Vice Foreign Minister Le Yucheng providing positive trade talk commentary.

Meituan Dianping (3690 HK) and Xiaomi (1810 HK) gave back some of yesterday’s gains falling -6.41% and -1.45% following their impending inclusion in the list of securities eligible for Southbound Connect, the trading platform that allows Mainland investors to purchase stocks on the Hong Kong Exchange. Macau gaming stocks had a good day as brokers believe sentiment might be better than expected. After visiting Macao recently, one of our brokers noted how crowded the casinos appeared. Mainland visitors can fly directly to Macao’s airport, thereby bypassing the Hong Kong airport and the delays associated with transit through Hong Kong.

One broker noted that China’s 4^th Plenum meeting, which is supposed to cover future economic policy and followed by the Central Economic Work Conference in December, is coming up. This meeting could present a positive catalyst for the market as investors anticipate further fiscal and monetary stimulus to support China’s economy.

According to Bloomberg, MSCI CEO, Henry Fernandez, responded to Senator Marc Rubio’s letter on the index provider including Chinese mainland stocks in their indices with a letter of his own articulating MSCI's methodology and process. MSCI is adding a select definition of mainland stocks (Shanghai and Shenzhen listed stocks) to their indices. This inclusion will raise China’s weight in indices such as MSCI Emerging Markets from 32% to over 40%. In the interest of full disclosure, I’ve had the pleasure of meeting Mr. Fernandez and I am a big fan!

H-Share Update

The Hang Seng chopped its way to a +0.23%/+60 index points gain to close at 26,786 as volume picked up 17.9% day over day, though still off the 1-year average. Breadth was good with 29 advancers and 18 decliners, however China Resources Land declined -7.88%/-22.1 index points after announcing a sale of 200mm shares at a 6.9% discount to yesterday’s close, Tencent gained +0.88%/+22 index points while China Mobile -1.06%/-12.9 index points. Apple supplier AAC was the best performer gaining +5.75%/+5.6 index points and China Resources Land was the worst performer. The Hong Kong stocks within the MSCI China All Shares Index declined -0.05% as real estate’s -2.2% decline weighed on the index with staples off -1.01% and discretionary -0.51%. Utilities were +0.74%, communication +0.36%, financials +0.28% and tech +0.2%. Southbound Connect volumes were moderate with sellers outpacing buyers by a small margin. Volume leader CCB had net buyers, but China Merchants Bank was sold off heavily after reporting disappointing financial results.

A-Share Update

The Shanghai & Shenzhen staged a late afternoon rally to close +0.5% and +1.01% though volumes were off -3% day over day and well off the 1-year average. Breadth was good with 2,254 advancers and 1,273 decliners as small and mid-caps outperformed large caps by nearly 1%. The mainland stocks within the MSCI China All Shares Index gained +0.31% as technology +1.49%, healthcare +1.14%, materials +0.39% and industrials +0.34%. The communications sector was off -0.97%, energy -0.2%, real estate -0.2% and financials -0.15%. Northbound Connect flows were light and Shenzhen Connect volumes outpaced Shanghai Connect volumes. Foreign buyers were active on both exchanges with a total of $41 million of mainland stocks purchased.

As I have reported, international financial institutions are rapidly building out independent businesses in China. It was reported that UBS will become the first foreign investment bank to take full control of its Chinese joint venture in early 2020. Morgan Stanley, Goldman Sachs and JP Morgan are in various stages of doing the same. Insurers AXA and Allianz have been approved to buy out their joint venture partners.  

New Orient Education (ticker: EDU) reported fiscal year Q1 earnings pre-market this morning that exceeded analyst expectations.

• Revenues +24.6% year over year to $1.07B versus estimate $1.07B
• Adjusted EPS +24.6% year over year to $1.44 versus estimate $1.37
• Q1 Enrollment +50.4% to 2.6mm
• Forecasted Q2 revenue $753 to $771 versus estimate $761mm

Last Night’s Prices

• USD/CNY 7.07 versus 7.07 yesterday
• Euro/CNY 7.88 versus 7.89 yesterday
• Yield on 1-Day Government Bond 2.06% versus 1.91% yesterday
• Yield on 10-Year Government Bond 3.22% versus 3.22% yesterday
• Yield on 10-Year China Development Bank Bond 3.62% versus 3.62% yesterday
• Commodities were mixed on the Shanghai & Dalian Exchanges with Dr. Copper +0.15%