Key News

Asian equity markets were largely higher with Japan, China, Korea, India, and Singapore higher while Hong Kong, Thailand and Indonesia were off. Hong Kong was pulled lower by Ping An Insurance (2318 HK) -3.86% after announcing earnings grew 50%, which missed analyst expectations. Ping An has invested in many TMT start-ups, which has been a key driver of growth. A potential fallout of WeWork, the disappointing Lyft/Uber IPOs, subsequent stock performance and a cooling IPO market could become a drag for Ping An. It is truly amazing to me that an insurance company could grow that quickly. The company did announce several management changes that may have contributed. Tencent (700 HK) was off -0.75% on slightly higher volume and no news other than that the stock broke the HK $320 level several days ago, which may have triggered some selling from structured products. Fairly quiet on the Mainland as Ping An’s results weighed on financials.

Vice President Mike Pence’s China speech at the Wilson Center in DC was a big exhale. While Hong Kong and the NBA were a focus, Pence backed away from advocating a US-China decoupling as some had feared.  A China Foreign Ministry spokesperson provided a fairly typical, non-consequential and face-saving response calling the speech “lies”. This morning there are reports China would like the US to reciprocate their increased agriculture purchases by cancelling both October and December tariffs. Both sides are posturing as negotiations continue with a phone call taking place today. All in all, the trajectory feels good (fingers crossed).

H-Share Update

The Hang Seng slipped to a loss -0.49%/-130 index points to close at 26,667 on light volumes off -2% day over day and well off the 1-year average. The index lost -0.2% on the week, which isn’t that bad. Breadth was mixed with 23 advancers and 27 decliners led lower by the index’s worst performers: Ping An Insurance -3.86%/-59.6 index points, China Construction Bank (CCB) -0.94%/-19.5 and AIA Group -0.73%/-18.6 index points. The index’s two healthcare stocks CSPC and Sino Biopharma were the leaders, gaining +5.66%/+14.7 index points and +3.48%/+8.2 index points, respectively. The Hong Kong stocks within the MSCI China All Shares Index lost -0.29% as financials weighed down the index losing -1.28% while Tencent weighed on communication -0.89%. Healthcare jumped +2.67%, staples +1.77% and discretionary +0.86%.

A-Share Update

The Shanghai & Shenzhen overcame early losses to grind higher by close +0.48% and +0.99%, respectively, on stronger volumes +13% day over day though still off the 1-year average. The indices gained +0.48% and +0.99% for the week. Breadth was strong with 2,236 advancers and 1,251 decliners as small and mid-caps outperformed mega caps and large caps by ~1%. The mainland stocks within the MSCI China All Shares gained +0.82% led higher by staples +2.48%, healthcare +1.63%, tech +1.29% and materials +0.77%. Financials were the only losing sector -0.14% followed by utilities +0.08%. Southbound Connect volumes were light, but buyers were active overall. Nonetheless, volume leaders CCB, China Merchants Bank and Tencent were all sold. Ping An was bought on the day’s drop at nearly 2 buyers for every 1 seller. Northbound Connect volumes were moderate with foreign investors in a buying mood. Shenzhen Connect volumes and buying activity outpaced Shanghai Connect, which was a consistent trend we noticed over the summer. It might be because MSCI is adding mid cap stocks to the November inclusion. That would make sense as more mid-caps are listed in Shenzhen. Foreign investors bought $217mm of mainland stocks today. For the week, foreign investors bought $493 million of mainland stocks.

TAL Education popped 13% post earnings yesterday and we can expect analysts to raise their price targets in the coming days. Recently listed Budweiser (1876 HK) missed earnings. Oops.

The earnings season for US-listed Chinese companies will kick into higher gear over the next two weeks and we will be watching. September Industrial Profits will be reported tomorrow so expect a full rundown from us on Monday.

President Xi will give a speech at the China International Import Expo on November 5^th according to SCMP.

Last Night’s Prices & Yields

CNY’s stability streak remains intact, living out the motto: “Stay Calm and Carry On.” Bonds are selling off a bit of late, likely driven by higher CPI/inflation concerns due to rising pork prices.

• USD/CNY 7.07 versus 7.07 yesterday
• Euro/CNY 7.85 versus 7.86 yesterday
• Yield on 1-Day Government Bond 1.71% versus 1.76% yesterday
• Yield on 10-Year Government Bond 3.24% versus 3.22% yesterday
• Yield on 10-Year China Development Bank Bond 3.63% versus 3.62% yesterday
• Commodities were higher on the Shanghai & Dalian Exchanges with Dr. Copper +0.11%