Key News

Asia’s equity markets were a sea of green as Larry Kudlow’s comments that trade negotiations were down to “short strokes” stoked animal spirits. All markets including Hong Kong were positive though Mainland China and Thailand saw losses. Noon protests hit Hong Kong’s Central, the financial district, but were peaceful. While the US Congress moves to fast track the Hong Kong Human Rights and Democracy Act, Thursday night a 70 year old died after a protester struck him in the head with a brick Wednesday during his lunch break when a group tried to remove bricks protesters had placed on a road. You won’t read about this, but Chan Tong-kai, the killer of Poon Hiu-Wing and her unborn child, was freed today, the issue that sparked the extradition bill. The protests and violence occurring in Chile, South America’s largest economy, makes Hong Kong look like a cake walk with nearly two dozen killed but apparently it isn’t fit to print nor deserving of attention from the US Congress.

Mainland China was off despite Kudlow’s comments and news that China will begin to import US poultry as investors are looking for more concrete news. October home prices were moderate, which weighed on markets while the PBOC’s injection of liquidity into the banking system disappointed investors who were expecting a bigger stimulus move following Premier Li’s calls for more counter cyclical measures. I don’t think they’ll have to wait too long as policy makers need to support weakness in manufacturing, though Singles Day shows that China’s consumer is doing just fine.

A Mainland media source noted the Ministry of Commerce spokesperson Gao Feng reported online retail sales from November 1^st through the 11^th totaled $124B (RMB 870B), an increase of +26.7% year over year. Gao pointed out that foreign brands did very well.

Reuters is reporting that The Federal Retirement Thrift Investment Board (FRTIB) will proceed with an index change from only having developed market exposure to one that incudes emerging markets. This move sparked Congressional ire over the fact that the allocation $600 billion plan would include China, despite the country bring home to the world’s second largest economy, stock market, and bond market.

JD.com reported better than expected results this morning. Following in the footsteps of Alibaba and Vipshop, the e-commerce company posted strong results despite net income coming in a touch light. The company exhibited fiscal discipline as expenses decreased.

• Revenue +28.7% $18.9B (RMB 134.8B) versus estimate 128.4B
• Active customer accounts increased to 334mm from 321mm for the year
• Income from operations $695mm (RMBB 4.9B) versus a loss of RMB 650mm
• Net income $85.7mm (RMB 612.3mm) compared to RMB 3B
• Adjusted EPS $0.29 (RMB 2.08) versus estimate RMB 1.22
• Q4 revenue forecast +12% to 25% RMB 163B to 168B versus estimate 162B

Online employment agency 51job Inc (JOBS) reported strong results after the US close. Guess what sector JOBS is in? Industrial! Despite the changes to sector definitions, there are still “nuances” to index methodologies that investors need to be aware of.

H-Share Update

The Hang Seng eased off morning highs to close +0.01%/+2.97 index points to close at 26,326 as volumes -16% day over day and well off the 1-year average. For the week the index lost -4.79% (+1.86% YTD). Breadth was off with only 14 advancers and 32 decliners, though the top index movers all gained led by AIA +0.79%/+20.6 index points, China Construction Bank +0.49%/+9.92 index points and ICBC +0.72%/+9 index points. AAC Tech was the best performer +1.79%/+1.85 index points after announcing a US debt issuance while CSPC Pharma dropped -1.42%/-4.21 index points. The Hong Kong stocks within the MSCI China All Shares Index eased -0.06% as utilities plunged -1.58% on news that natural gas imports have slowed, healthcare -0.58%, real estate -0.51%, industrials -0.51%, tech -0.4%, materials -0.4% and energy -0.27%. On the positive side, a recovery in autos led discretionary higher +0.8%, liquor/beer led staples +0.72% and communications +0.13%. Southbound Connect volumes were moderate/light with volume leaders CCB seeing 2 to 1 buying, ICBC 10 to 1 buying and Kingsoft 2.5 to 1 buying. Tencent saw just under 2 to 1 selling.

A-Share Update

The Shanghai & Shenzhen rebounded off morning losses on the Kudlow comments but sold off into the close to end -0.64% and -1.13% as volume +3% day over day but well off the 1-year average. For the week the Shanghai and Shenzhen lost -2.46% and -2.61% (+15.9% and 26.6% YTD). Large caps “outperformed,” but were off ~50bps while mid and small caps were down ~1% driven by sector dispersion. The Mainland stocks within the MSCI China All Shares Index were off -0.59% with every sector down except for communications, which managed a gain of +0.17% while tech -1.06%, industrials -0.95%, staples -0.88%, materials -0.82%, healthcare -0.72%, energy -0.7%, real estate -0.42%, discretionary -0.36%, financials -0.17% and utilities -0.17%. Foreign investors were active via Northbound Connect as volumes were moderate/light as Shenzhen Connect volumes and buying again exceeded that of the Shanghai Connect. Foreign investors must have read last Thursday’s MSCI pro forma as favorable to mid-caps, which are predominantly listed on the Shenzhen, thus explaining the disparity between the two. Foreign investors bought $240mm of mainland stocks today. For the week, foreign investors bought $254mm of mainland stocks.

Last Night’s Prices & Yields

• CNY/USD 7.0099 versus 7.0216
• CNY/EUR 7.74 versus 7.72
• Yield on 1-Day Government Bond 2.13% versus 2.10% yesterday
• Yield on 10-Year Government Bond 3.24% versus 3.26% yesterday
• Yield on 10-Year China Development Bank Bond 3.63% versus 3.65% yesterday
• Commodities were mixed on the Shanghai & Dalian Exchanges with Dr. Copper -0.23%