Daily Posts

Alibaba’s Sales Bonanza, Hong Kong Violence

Key News

Asian equities were largely lower as Hong Kong was hit hard, but India stood out as a positive outlier. President Trump’s comments on trade were somewhat positive, but included a denial of tariff rollbacks, which markets had viewed positively. One can assume the administration’s trade hawks were upset by recent positive developments. Unfortunately, the violence we predicted after the death of a university student Friday came to fruition. Police shot a protester while a man who confronted protesters after they vandalized a subway station was doused with lighter fluid and set on fire. The videos of both incidents are available online, but are not for the faint of heart. Both are in the hospital in critical condition. The trade comments weighed on Mainland markets, but more important and largely unreported was CSRC’s (China’s SEC) move to relax IPO requirements for smaller companies and secondary offerings. More supply isn’t a good thing for markets, though data continues to show that private companies struggle to gain access to credit. It is worth noting that foreign investors were buyers (again) of Mainland Chinese stocks, while Mainland investors were aggressive buyers of Hong Kong stocks today. While headlines today will be very negative, investors appear to be buying the dip.

Alibaba’s Single Day sales bonanza exceeded last year’s record of $30.5 billion (RMB 213 billion) of goods sold seventeen hours into the 24-hour extravaganza. Alibaba sold $13 billion of goods in the first hour of the event, up 32% year over year, while the company reported that over one billion orders were made by the 18th hour, exceeding last year’s 1.042 billion order total. This is despite competition from similar sales events from competitors JD.com and Pinduoduo. Brokers are reporting that a JD.com sales event, which runs from 11/1 to 11/11 is up 30% from last year.

H-Share Update

The Hang Seng tumbled -2.62%/-724 index points to close below 27k at 26,926 as volume picked up +8.6% from Friday and barely above the 1-year average. Breadth was awful with only 1 advancer and 49 decliners as index heavyweights AIA -3.4%/-92.2 index points, China Construction Bank -3.09%/-63.7 index points and HSBC -1.75%/-46.2 index points. CSPC Pharma was the only gainer today +0.48%/+1.4 index points Sun Hung Kai Properties plunged -7.21%/-28.4 index points. The Hong Kong stocks within the MSCI China All Shares fell -2.39% with trade sensitive tech -3.38%, discretionary -3.21%, real estate -3.03%, industrials -2.85%, energy -2.68%, financials -2.67%, materials  -2.57% and staples -1.96%. Tencent only fell -1.3%, which made communication the “best” performer -1.61%, while healthcare and utilities were off -1.72%. Southbound Connect volumes were moderate as Mainland investors saw today’s fall as a buying opportunity. The top five stocks by volume all had meaningful buying. CCB, ICBC, Tencent, Meituan and Kingsoft all had buyers step into the breech.

A-Share Update

The Shanghai & Shenzhen were off -1.83% and -2.26% as volumes were off -5% day over day and below the one-year average. Breadth was atrocious with only 310 advancers and 3,410 decliners as the sell-off hit large, mid and small caps equally. The Mainland stocks within the MSCI China All Shares Index fell -2.05% led lower by discretionary -2.82%, materials -2.51%, real estate -2.45%, energy -2.41%, healthcare -2.34%, industrials -2.29%, tech -2.19% while staples fell -1.32% and utilities -1.35%. Northbound Connect volumes were moderate as foreign investors were actively buyers as volumes on the Shenzhen Connect exceeded the Shanghai. Foreign investors bought a total of $95mm of mainland stocks.

Inflation Data

October Year over Year % Change

CPI 3.8% versus estimate 3.4% and Sept’s 3%
PPI -1.6% versus estimate -1.5% and Sept’s -1.2%

Takeaway: Released after the market’s close Friday night, the news was as bad as anticipated. CPI continues to surge. Food prices surged 15.5% as pork +101%. China’s continued purge of its pig population due to African swine flu is having a very dramatic effect on pork prices. China’s PPI fall shows the effect of tariffs on the economy, though the upstream and downstream effect on the global economy is a worrying sign. Both economic indicators highlight why the trade war should be ended. China will go hog wild for US pork, while the global economy could use a boost from the removal of tariffs.

Aggregate Financing

618B versus estimate 950B and Sept’s 2.27 trillion

Takeaway: Credit is not getting to private companies as policy makers would like. This is a problem that will be addressed as private companies account for approximately two thirds of China’s economy.

US-Listed Earnings

Big week for US-listed Chinese internet and e-commerce companies earnings, a few are scheduled as follows:

11/11 Tencent Music post-market

11/12 YY and HUYA post-market

11/13 Tencent post HK close VIPS pre-market Ctrip post-market

11/14 Sina & WB pre-market

11/15 JD.com pre-market

Last Night’s Prices & Yields

  • CNY/USD 7.01 versus 6.99 Friday
  • CNY/EUR 7.74 versus 7.71 Friday
  • 1-Day Government Bond Yield 1.68% versus 1.70% Friday
  • 10-Year Government Bond Yield 3.25% versus 3.29% Friday
  • 10-Year China Development Bank Bond Yield 3.68% versus 3.71% Friday
  • Commodities on the Shanghai & Dalian exchanges were lower though Dr. Copper -0.4%