Asia Waits for Powell, Earnings Drive Hong Kong and Mainland Markets, Onshore Yields Trend Higher
Asia had a mixed day with Singapore, India, Malaysia, Thailand, Indonesia and Taiwan up while Japan, Hong Kong, China, Australia and Korea were off. Volumes were mixed with positive markets accompanied by higher volumes while down markets were lower on light volumes though Japan’s Topix index rebalance kept Japanese traders busy. Trading desks noted the wait-and-see ahead of the Fed’s policy statement and Jerome Powell’s press conference this afternoon. Western media used a lot of ink in saying that the trade deal is not ready for Xi and Trump to sign due to China’s pushback on agricultural purchases. The $50B purchase amount seems detached from reality, though US LNG and oil exports to China could make the number feasible. While the negative nabobs of negativity dominate the trade headlines, there was little to no attention given to the press conference held by Wang Shouwen, China’ Vice Commerce Minister, discussing further financial opening up and ensuring there are no technology transfers. Tech transfers have been used a toll charge for accessing China’s vast market historically. Their abolition is long overdue. Additionally, Reuters noted that the Foreign Ministry spokesperson confirmed that trade talks continue over the phone.
Earnings were a major factor in Hong Kong and China as EV bus maker BYD (1211 HK) missed earnings sending the stock -5.56% and the discretionary sector lower. Standard Chartered (2888 HK) surprisingly beat analyst expectations, sending the stock +2.81% following HSBC’s disappointing results. Unfortunately, Standard Chartered is UK domiciled so the Hong Kong stock rise had no effect on China or HK indices. CSPC Pharma (1093 HK) beat on earnings rising +5.94% to a 52 week high. Yanghe Brewery (002304 CH) missed on earnings sending the stock -3.12% and weighing on the staples sector.
Onshore bond yields are rising consistently across the board, leading to a stronger RMB. The PBOC offered little in the way of relief to bond traders as it allowed last week’s massive cash injections to mature, while more maturing debt will soon add more strain to China’s sovereign bonds, which are already under pressure from a global selloff. Liquidity is tight due to tax payments and the fact that the PBOC has not been supporting liquidity.
The Hang Seng eased -0.44%/-119 index points to close at 26,667 on light volume off -4.4% day over day and well off the 1-year average. Breadth was off with only 16 advancers and 33 decliners as index heavyweights CCB and AIA were off -1.27%/-25.9 index points and -0.84%/-21.9 index points, respectively, though CSPC Pharma’s strong results led to a +5.94%/+16.8 rally making it the best performer in the index. PetroChina was off -1.96%/-5.03 index points as the day’s worst performer though several real estate names were just behind it. The Hong Kong stocks within the MSCI China All Shares were off -0.6% as healthcare was the only gaining sector +0.57% while energy slumped -1.45%, industrials -1.03%, utilities -0.92%, financials -0.78%, real estate -0.75% and staples -0.5%. Southbound Connect volumes were moderate with buyers outpacing sellers. Meituan Dianping had MASSIVE buying volume versus selling volume on day three of Stock Connect eligibility while volume leader CCB was sold 3 to 2. Interesting to note that Tencent was sold, but not by a large margin.
Shanghai & Shenzhen were off -0.5% and -0.86%, respectively, on light volumes -13% day over day and below the 1-year average. Breadth was poor with just 1,120 advancers and 2,921 decliners as large caps held up a bit better than mid and small caps. The mainland stocks within the MSCI China All Shares declined -0.43% as utilities was the only positive sector +0.17% while discretionary was off -1.13% as BYD’s poor results weighed on the sector, materials was off -0.61%, real estate -0.5%, industrials -0.44%, energy -0.41%, healthcare -0.4% and financials -0.38%. Northbound Connect volumes were moderate though foreign investors were in a buying mood. Shenzhen Connect volumes exceeded Shanghai Connect volumes while buying was more pronounced on the former than the latter. It was another impressive day for inflows with $410mm of mainland stocks purchased net of sells. Wow!
Last Night’s Prices & Yields
- USD/CNY 7.06 versus 7.07 yesterday
- Euro/CNY 7.83 versus 7.83 yesterday
- Yield on 1-Day Government Bond 1.63% versus 1.63% yesterday
- Yield on 10-Year Government Bond 3.31% versus 3.30% yesterday
- Yield on 10-Year China Development Bank Bond 3.76% versus 3.72% yesterday
- Commodities were higher on the Shanghai & Dalian Exchanges with Dr. Copper +0.15%.