Daily Posts

Tencent Weighs on Hong Kong, Justice for Poon Hiu-wing?

Key News

Asian equity markets were mixed as Japan returned from a market holiday in an upbeat mood and Korea, India, Thailand and Malaysia gained on the day. Hong Kong was off as Brexit concerns hit Hong Kong-listed companies such as HSBC that have a significant UK presence. The proposed 2 billion Hong Kong Dollar stimulus package underwhelmed the market while the Financial Times reported that Hong Kong leader Carrie Lam would be replaced, though the latter was subsequently denied. Tencent’s fall of -2.32% accounted for ~25% of the Hang Seng’s fall on the news that Bytedance might launch a gaming division and the overhang from the pulling of NBA games in China. Several brokers noted that the stock should see support at current levels, though others noted Hong Kong’s large structured product and warrants markets could put pressure on the stock if it falls further. Hong Kong’s warrants often have “knock out” prices, which work as well as portfolio insurance did in 1987. Once hit, it creates more selling. Tencent is a big company so I doubt hitting a “knock out” price would have a medium or long run effect, though it could see short term/daily price pressure.

Mainland China had an off day as investors wait for more trade news, despite reports of progress including China purchasing 10mm tons of soybeans and Premier Li making positive comments on trade. The market also overlooked reports that regulators will accelerate pension plans’ equity allocations. I also saw a report that the CSRC, the SEC of China, will slow fixed income mutual fund approvals as there haven’t been enough equity mutual fund launches.

Chan Tong-kai walked free from a Hong Kong jail today despite substantial evidence he murdered his pregnant girlfriend, Poon Hiu-wing, while on vacation in Taiwan. Hong Kong’s desire to see him prosecuted led, in part, to the introduction of the extradition bill this spring, which subsequently led to the demonstrations that continue in Hong Kong. It is shocking to me that this aspect of the Hong Kong demonstrations has not been widely publicized. Both Hong Kong and Taiwan can share the blame on not finding a solution to see him prosecuted for a crime he has indirectly admitted to.

The South China Morning Post reported the most expensive parking space just sold in Hong Kong for $969,000 which is equivalent to $7,205 per square foot. This sums up the issue of Hong Kong’s wealth inequality and affordable housing problem which is the real issue behind demonstrations.

H-Share Update

The Hang Seng fell -0.82%/-219 index points to close at 26,566 on lower volumes off -9% day over day and well off the 1-year average. Breadth was awful with only 5 advancers and 45 advancers as Tencent -2.32%/-57.8 index points, insurance giant AIA -0.73%/-18.6 index points, and China Mobile -1.07%/-12.9 index points. ICBC was the best performer +0.73%/+9 index points while pork supplier WH Group -3.99%/-7.9 index points as skyrocketing pork prices garner increased attention for their effect on China’s CPI. Apple supplier AAC was right behind WH -3.59%/-3.4 index points. The Hong Kong stocks within the MSCI China All Shares Index were off -1.01%, led lower by Tencent’s move as communications -1.97%, healthcare -1.88%, real estate -1.32%, discretionary -1.11% and tech -0.85%. Only materials and utilities managed small gains of +0.49% and +0.06%. Southbound Connect volumes were moderate with mainland investors small sellers of Hong Kong listed stocks.

A-Share Update

The Shanghai & Shenzhen were off all day but slid into the close to end up -0.43% and -0.79%, respectively, as volumes were up 1.8% day over day but well off the 1 year average. Breadth was off with 1,057 advancers and 2,500 decliners as large caps fell less than mid- and small caps by a small margin on what could be a risk off day. The mainland stocks within the MSCI China All Shares declined -0.59% as healthcare was off -1.45%, real estate -1.37%, communications -1.11% and staples -0.86%. only utilities managed a gain on the day of +0.33%, though financials helped large caps as they “outperformed” by only falling -0.27%. Northbound Connect volumes were light though foreign investors were sellers overnight with $255mm of mainland stocks sold. Week to date foreign investors have bought $197mm of mainland stocks.

We mentioned that New Orient Education (ticker EDU) beat analyst expectations with their pre-market earnings release yesterday. The stock promptly fell -7% on what several brokers called “buy the rumor and sell the news”. Even after yesterday’s fall, EDU is up 97% YTD. Fellow education provider TAL Education reports tomorrow.

Last Night’s Prices & Yields

  • Euro/CNY 7.86 versus 7.88 yesterday
  • US $/CNY 7.07 versus 7.08 yesterday
  • Yield on 1-Day Government Bond 1.91% versus 2.06% yesterday
  • Yield on 10-Year Government Bond 3.21% versus 3.22% yesterday
  • Yield on 10-Year China Development Bank Bond 3.61% versus 3.62% yesterday
  • Commodities were mixed on the Shanghai & Dalian Exchanges with Dr. Copper -0.21%
Tencent’s headquarters in Shenzhen