Key News

Asian equity markets were mixed with Hong Kong, Mainland China, Taiwan, Australia, India, Malaysia and Indonesia up while Japan, Korea, Singapore and Thailand were off. It was a fairly quiet night US China trade talk news was light. The US did provide Huawei 90 days to continue to buy US technology, which is a positive development and potentially an indication that US China talks are doing better than anticipated. Hong Kong’s rebound has caught many by surprise as brokers are calling it a technical rebound based on last week’s steep selloff, though the PBOC did another liquidity injection today. The market is expecting the PBOC to cut the Loan Prime Rate tomorrow.

Video game stocks such as Tencent had a strong day as Google launched its Stadia cloud gaming service while Alibaba’s Hong Kong listing is fully subscribed ahead of its IPO next week.  Hong Kong head Carrie Lam appeared to offer an olive branch by allowing several dozen students holed up at Polytechnic University to leave without being arrested. Hong Kong real estate rebounded in hopes that maybe the worst is behind us. The police went into the University, which sits above a major tunnel/roadway from Kowloon to Hong Kong Island that students had shut down. The US Congress appears to be close to passing the Hong Kong Democracy Bill, though we don’t know Trump’s view of the bill. The passage won’t help trade negotiations, but it will be mainly symbolic as revoking Hong Kong’s US trading status would be the economic death knell of the island.

One minor edit from yesterday’s note. Chinext stocks are to be added to Northbound Connect as opposed to STAR Board names. My bad!

MSCI announced after yesterday’s US close that Alibaba’s Hong Kong listing (9988 HK) does not qualify for fast track inclusion due to the 500mm shares being floated is below their mandated threshold. 9988 HK will be added at the February Quarterly Index Review.

Online video and entertainment company Bilibili (BILI US) reported Q3 earnings after the US close yesterday. The company’s live broadcasting revenues jumped 2.5X for the first 9 months of this year versus last year. While Bytedance’s TickTok has taken a bite out of many internet companies, Bilibi appears to have bucked that trend.

• Revenue +72% RMB 1.859B ($260mm) versus estimate 1.76B
• Average monthly active users increased +38% to 127mm, daily active users +40% to 37.6mm
• Average monthly paying users +124% to 7.9mm
• Adjusted loss per share RMB 1.05 ($0.15) versus estimated loss 1.08
• Q4 revenue forecast RMB 1.93B to 1.98B versus estimate 1.76B

58.com (WUBA US), often called the Craigslist of China despite it being a for-profit, publicly traded company, reported Q3 earnings after the US close yesterday.

• Revenues +17.4% to RMB 4.258B ($602mm) from 3.626B
• Paying business users +3% to 3.6mm
• Gross margins declined slightly to 88.2% from 89.5%
• Income from operations +28.6% to RMB 862mm ($121.9mm)
• Net income +9% to RMB 791.6mm ($111.9mm)
• Non GAAP net income +20.7% RMB 1.018B ($143.9mm)
• Adjusted EPS +20.2% to RMB 6.76 ($0.96) versus estimate 5.71
• Q4 revenue forecast RMB 4.05B to 4.15B representing a +12% to 15% versus estimate 4.09B

Peer to peer lender Qudian Inc (QD US) lost -21% after reporting disappointing Q3 earnings prior to the US market open yesterday. Revenues gained +34% year over year and net income +52% YoY though the full-year guidance came in light while net income missed analyst expectations. Also reporting was online consumer finance company LexinFintech (LX US) reported very strong Q3 earnings after the close yesterday. It is a particular favorite of a boutique research firm that we follow.

H-Share Update

The Hang Seng grinded higher all day to close above 27k at 27,093 gaining +1.55%/+412 index points as volumes picked up 13% day over day though off the 1-year average. Breadth was strong with 47 advancers and 3 decliners as Tencent +2%/52.4 index points, China Construction Bank +1.74%/+36.8 index points and AIA +1.27%/+34.5 index points. Apples suppliers AAC Tech and Sunny Optical were the day’s best performers +6.1%/6.9 index points and +5.1%/14.3 index points while China Senhua Energy -0.52%/-0.82 index points while Sands China -0.39%/-1.2 index points as VIP weakness offset mass gaming gains. The 204 Hong Kong stocks within the MSCI China All Shares Index gained +1.5% led higher by healthcare +2.98%, tech +2.75%, real estate +2.27%, materials +2.09%, communications +1.79%, staples +1.75%, financials +1.25% and industrials +0.82%. Only energy was in the red off -0.05%. Southbound Connect volumes were moderate with Mainland buyers active. Volume leader China Senhua did see nearly 4 to 1 selling while Tencent had mixed trading, and CCB 6 to 1 buying.

A-Share Update

The Shanghai & Shenzhen gained +0.85% and +1.83%, respectively, as volumes picked up 16.7% day over day though off the 1-year average. Breadth was AMAZING with 2,402 advancers and only 264 decliners. Small and mid-caps outperformed large caps by ~150bps in a very big divergence. The 466 mainland stocks within the MSCI China All Shares Index gained +0.88% with all sectors positive today led by communications +3.5%, healthcare +1.89%, tech +1.64%, materials +1.61%, real estate +1.48%, discretionary +0.99%, industrials +0.98% and staples +0.57%. Financials were the day’s laggard +0.01%. Northbound Connect volumes were moderate/light. Once again, Shenzhen Connect had higher volume and more buying than Shanghai Connect. MSCI’s 11/26 rebalance will add mid-cap stocks to their definition of China A-shares inclusion. This likely explains the disparity as investors prefer the mid-caps listed on Shenzhen over the mega/large caps on Shanghai. Foreign investors bought $359mm of mainland stocks today which is a BIG number! Week to date +$566mm of foreign buying.

Last Night’s Prices & Yields

Big bond rally over the last few days.

• CNY/USD 7.0243 versus 7.0162 Yesterday
• CNY/EUR 7.78 versus 7.78 Yesterday
• Yield on 1-Day Government Bond 1.96% versus 1.86% Yesterday
• Yield on 10-Year Government Bond 3.17% versus 3.20% Yesterday
• Yield on 10-Year China Development Bank Bond 3.55% versus 3.57% Yesterday
• Commodities were mixed on the Shanghai & Dalian Exchanges with Dr. Copper -0.09%