Key News

It was a quiet night with Asian equity markets broadly higher though Hong Kong and China experienced profit taking after yesterday’s strong move. HSBC’s poor results weighed on the market, while Tencent continues to face pressure following the NBA game ban. For technical analysts, the 27k level has been holding resistance for the Hang Seng. Earnings season is in full swing for Hong Kong and the mainland so individual stocks are moving based on their results. The Mainland market saw profit taking as the government tempered investor enthusiasm for everything blockchain-related following President Xi’s comments yesterday.

Air conditioning giant Gree Electric Appliances (000651) surged +4.38% after announcing an affiliate of prestigious private equity firm Hillhouse Capital is buying a 15% stake in the company valued at $7.5 billion. Mary Meeker utilizes the Yale graduate-founded PE firm’s China coverage in her annual global internet review which is a must read if you haven’t seen it.

H-Share Update

The Hang Seng sold off all day to close -0.39%/-104 index points to close at 26,786 on light volumes off -2.7% day over day and below the 1-year average. Breadth was off with 18 advancers and 28 decliners as index heavyweights struggled with Tencent -1.55%/-38.2 index points, HSBC -1.22%/-35.3 index points following their poor earnings yesterday and ICBC off -1.06%/-13.3 index points. Pork giant WH Group surged +5.75%/+12.7 index pints following strong earnings reported today, though healthcare stocks were on its heels. Sands China was the worst performer -1.67%/-5.5 index points. The 204 Hong Kong stocks within the MSCI China All Shares slipped -0.37% as HSBC is not a China domiciled company and therefore is not considered a Chinese company. It is not part of the MSCI China Index, but the MSCI Hong Kong Index, which is a developed market index. Healthcare had a strong day +1.68% followed by discretionary +0.82% and real estate +0.42% though Tencent dragged communications -1.31%, materials -0.75%, staples -0.66%, tech -0.48% and financials -0.32%. Southbound Connect volumes were moderate with mainland investors buyers of Hong Kong stocks. Volume leader CCB did see slight selling pressure, while Tencent was even between buyers and sellers.

A-Share Update

Shanghai and Shenzhen were off -0.87% and -0.94% as volume increased +2.87% and above the 1-year average. Breadth was off with only 729 advancers and 2,912 decliners as small caps and mid-caps came under more selling pressure than large caps. Large caps were off ~50bps versus small and mid between -~100 to 150bps. The mainland stocks in the MSCI China All Shares Index were off -0.59% as staples had a strong day +1.3% while healthcare also managed to be in the green +0.51%. Tech was off -2.04%, industrials -1.34%, utilizes -1.14%, materials -1.06% and financials -0.93%. Northbound Connect volumes diverged dramatically as Shanghai had moderate volume while Shenzhen Connect volumes surged to a high level and both enjoyed strong buying. Gree accounted for a large part of the disparity as it had 4 to 1 buying to selling. Foreign investors bought a total of $343mm shares today following yesterday’s $401mm.

I need to a full review of multinational companies profits in China. Daimler’s Q3 results did stand out to me as China revenue -2% YoY while total firm revenue +8%, though China car sales hit an all time high. The Mercedes Benz unit sold 173k cars in China versus 76k in the US and 85k Germany. Wow!

Last Night’s Prices & Yields

• Euro/CNY 7.83 versus 7.84 yesterday
• USD/CNY 7.07 versus 7.07 yesterday
• Yield on 1-Day Government Bond 1.62% versus 1.68% yesterday
• Yield on 10-Year Government Bond 3.30% versus 3.29% yesterday
• Yield on 10-Year China Development Bank Bond 3.72% versus 3.70% yesterday
• Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.08%.