Key News

Every Asian trading desk was in the doldrums after President Trump and Wilbur Ross’ measured comments on US-China trade dialogue in advance of the December 15^th tariff escalation date. The US’ opening of another front in the trade war in Europe didn’t help as US equities had a bad day. Additionally, the passing of a Xinjiang bill in the house did not exactly calm or inspire markets. Despite the bad news, which reminds me of the saying “always kick a person when they are down as you’ll never get a better chance”, markets weren’t off that badly.

Hong Kong was the worst regional performer by far despite the announcement of HK $4B of small business tax relief. Hong Kong real estate stocks continue to tank.

At 4 AM, Bloomberg released an article saying that the US-China trade talks were going well despite “harsh rhetoric,” quoting “people who asked not to be identified”. Bloomberg News is an interesting leak choice for the US side and far less likely for the China side. For the US side, the WSJ and CNBC are the go-to sources, while, for China, South China Morning Post and official media outlets are the most credible. That being said, the US equity market tanking is never a good sign, especially when it is self-inflicted. Mainland Chinese stocks held up as White Horse stocks (liquor, consumer names) performed well following a proposed consumption tax, which came in lower than feared. Gold stocks were a strong performer in both markets while trade-sensitive names underperformed.

Alibaba’s Hong Kong listing (9988 HK) is selling an additional 75mm shares as the full over-allotment is filled.

Caixin (IHS Markit) PMI Data

Caixin China PMI Services: 53.5 versus estimate 51.2 and Oct’s 51.1

Takeaway: There has been little to no notice of this economic data point as it fails to fit with the media narrative, which was released in early morning trading. While an element of China’s economy, namely export-driven manufacturing, is adversely affected by the trade war, China’s consumer is alive and well as evidenced by today’s release. It is also important to note that Caixin's survey is actually conducted by IHS Markit.

H-Share Update

The Hang Seng opened lower and stayed there all day closing -1.25%/-328 index points to close at 26,062 though volumes remained light. Breadth was atrocious with only 1 advancer and 48 decliners as index heavyweights AIA -1.71%/-45.2 index points, HSBC -1.64%/-41.8 index points and Ping An Insurance -1.5%/-22.5 index points. Geely Auto was the only member of the 50-stock index that gained +0.54%/+1.3 index points following yesterday’s report that China hopes for 25% of all auto sales will be in EV by 2025. China Unicom was flat on the day in what counts as a victory in a risk-off day. Apple suppliers AAC Tech and Sunny Optical were the day’s worst performers, off -3.71%/-3.9 index points and -3.49%/-9.4 index points, respectively, though a multitude of real estate names were at their heels. The 207 Hong Kong stocks within the MSCI China All Shares Index lost -0.98% as neither AIA nor HSBC is considered Chinese companies due to their non-China domicile. Real estate was the day’s worst performer -1.68% followed by materials -1.3%, discretionary -1.26%, energy -1.2%, financials -1.02%, industrials -1.01%, tech -0.92%, health care -0.82%, staples -0.79%, communication -0.7%,  and utilities -0.62%. Southbound Connect volumes were moderate, while Mainland investors continue to buy Hong Kong stocks. Volume leader CCB had another outsized buying day while Tencent was sold not 3 to 2 and ICBC bought heavily. I find it interesting that CCB has seen such massive buying. I’ll do some digging and report back. Southbound Connect volumes were 6% of HK’s turnover today.

A-Share Update

The Shanghai & Shenzhen traded in narrow ranges diverging -0.23% and +0.2% on light volumes. Breadth was mixed with 1,724 advancers and 1,758 decliners as mid-caps outperformed large and small caps. The 501 mainland stocks within the MSCI China All Shares Index declined -0.17% as materials gained +0.52%, healthcare +0.49%, discretionary +0.14% and staples +0.04%. On the downside, real estate was off -0.8%, financials -0.53%, industrials -0.51%, energy -0.48%, communication -0.24%, utilities -0.11% and tech -0.1%. Northbound Connect volumes were moderate/light while, once again, Shenzhen Connect volumes and buying exceeded Shanghai’s. Foreign investors bought $561mm of mainland stocks today bringing the weekly total to $1.435 billion. Northbound Connect volumes were 5% of the Mainland’s turnover today.

For the goldbug readers, I noticed Zijin Mining Group is buying Canadian miner Continental Gold in $1 billion takeover. The CME listed Shanghai Gold futures earlier this year in what I am told has been a very successful launch.

Last Night’s Prices & Yields

• USD/CNY 7.05 versus 7.06 yesterday
• CNY/EUR 7.81 versus 7.82 yesterday
• Yield on 1-Day Government Bond 1.66% versus 1.82% yesterday
• Yield on 10-Year Government Bond 3.18% versus 3.17% yesterday
• Yield on 10-Year China Development Bank Bond 3.58% versus 3.60% yesterday
• Commodities were mixed on the Shanghai & Dalian Exchanges with Dr. Copper -0.25%