Key News

Japan was closed today, which meant it missed out on a strong day across the board as Asian equity markets responded favorably to the US’ strong market moves Friday. In addition, there were multiple positive developments in US-China trade talks over the last 72 hours. On Friday, Vice Premier and lead trade envoy Liu He spoke with USTR Robert Lighthizer and Treasury Secretary Steven Mnuchin. Mainland media called the discussion “serious and constructive”.  With Chile having cancelled the APEC conference, the two sides are working on finding a new signing venue. My chips are on Iowa as it would make a great photo opportunity while providing a not-so-subtle reminder for farm voters. Wilbur Ross provided positive comments from Bangkok during a Bloomberg TV interview Sunday while attending the Association of Southeast Asian Nations. He reiterated that the Phase One deal was progressing well, while also mentioning that restrictions on Huawei buying US technology could be eased. A Mainland broker noted that the Ministry of Justice posted new rules on foreign investment in China that bar forced technology transfers. We will keep an eye out for confirmation as I am not seeing this widely disseminated other than in Mainland media sources, though it would remove a significant issue. Intellectual Property is another issue though China has a lot of IP it wants to protect. If these two issues are addressed, progress beyond Phase One becomes more likely.

China education stocks should have a good day following policy news that supported private companies, while healthcare rallied following the approval an Alzheimer drug. Technical analysts will be watching the Hang Seng, which closed above the 27k resistance level and above the 200-day moving average. One broker noted that US equity markets are at an all-time high while Hong Kong and China not so much. The latter could have room to run versus their US equivalents.

H-Share Update

The Hang Seng ripped +1.65%/+446 index points to close at 27, 547, above the 27k resistance level, on strong volumes +11.8% from Friday and above the 1-year average. Breadth was very strong with 47 advancers and 2 decliners led higher by AIA +3.33%/93.2 index points, Tencent +1.87%/+47.6 index points and China Construction Bank +1.89%/+40.2 index points. CSPC Pharma was the strongest performer +4.94%/+14.6 index points while Link REIT eased -0.87%/-4.7 index points. The Hong Kong stocks within the MSCI China All Shares Index gained +1.87% with healthcare +2.98%, materials +2.83%, staples 2.8%, real estate +2.61%, industrials +2.32%, tech +2.25% and financials +1.86%. All sectors were positive with utilities lagging +0.5%. Southbound Connect volumes were moderately high with sellers taking some profits as volume leader CCB was sold 5 to 3 and Tencent 3 to 1 while Meituan had very strong buying activity.

A-Share Update

The Shanghai & Shenzhen gained +0.58% and +0.59% on volumes +8.1% from Friday, though off the 1-year average. Breadth was mixed with 1,751 advancers and 1,761 decliners as large, mid and small cap stocks rose. The Mainland stocks within the MSCI China All Shares Index rose +0.78% with tech +1.33%, healthcare +1.1%, staples +0.93, industrials +0.89% and discretionary +0.79%. Communications was the only sector in the red -0.01%. Northbound Connect flows were moderate though buyers were out in force following last week’s very strong flows. Shenzhen volumes exceeded the Shanghai, but buying was more pronounced on the latter. Foreign investors purchased $581mm of mainland stocks following last week’s blockbuster inflow week.

October Markit/Caixin Services PMI data is expected to be released tonight/tomorrow China time.

Last Night’s Prices & Yields

Currency was stable and yields were mixed.

• RMB/USD 7.03 versus 7.03 Friday
• RMB/EUR 7.84 versus 7.86 Friday
• 1-Day Government Bond Yield 1.76% versus 1.81 Friday
• 10-Year Government Bond Yield 3.29% versus 3.28% Friday
• 10-Year China Development Bank Bond Yield 3.74% versus 3.71% Friday
• Commodities on the Shanghai & Dalian exchanges were mixed with Dr. Copper off +0.02 %