Daily Posts

Trade Deal Rally While Pork & Soybean Tariff Exemptions Announced Post-Market Close

Key News

Asian equities followed Wall Street higher as investors cheered US-China trade dialogue with every market in the green other than India and Thailand.

Overnight, Steven Mnuchin’s positive comments and reports of continued US-China team dialogue fueled optimism. After the Asian market close the Customs Tariff Commission announced that tariffs on US-imported soybeans and pork would be exempt. The olive branch gesture should help continue talks, though China remains steadfast that current tariffs are rolled back facing the December 15th deadline for more US-tariffs.

Apple suppliers’ rally on the positive news also highlights the risk for Apple and US equities if a deal does not happen.

Alibaba Hong Kong (9988 HK) jumped +2.65% after Goldman Sachs added the stock to its conviction list yesterday. We almost had a repeat of yesterday with every sector in both Hong Kong and Mainland in the green –– Hong Kong utilities spoiled the winning streak. Discussed below, foreign inflows into the Mainland continue at a strong pace.

I had the opportunity to hear a Hong Kong-based Emerging Market strategist speak yesterday on his 2020 Asia outlook. He was generally positive on growth-oriented sectors versus old economy sectors. I asked him about what gets Hong Kong going. He was less optimistic as he doesn’t see a solution to the protests as the population has lost confidence in Hong Kong leader, Carrie Lam. A big protest is planned for this weekend. I asked him about China Construction Bank’s massive southbound flows which he felt was a yield play. In diving in it appears China Construction Banks Hong Kong listing yields 5.52% versus their Mainland listing yielding 4.29% and a Chinese Treasury bond yielding 3.1%. Makes sense to me!

H-Share Update

The Hang Seng had a strong day closing on the day’s high +1.07%/+281.3 index points at 26,498. Volumes finally picked up giving some confirmation to the move +14.7% day over day, though off the 1 year average. The Hang Seng indices rebalanced today at the close which likely explains the volume pick up. Breadth was strong with 45 advancers and 2 decliners led by Tencent +1.7%/+44.4 index points, CCB +1.45%/+30 index points and Apple supplier Sunny Optical +5.72%/+17.1 index points. Fellow Apple supplier AAC Tech +8.97/+11.2 index points while HK & China Gas and China Petroleum was off -0.27%/-1.2 index points and -0.23%/-0.77 index points, respectively. The 207 HK stocks within the MSCI China All Shares gained +1.02% led higher by tech +3.23%, healthcare +1.6%, materials +1.48%, communications +1.37%, real estate 1%, financials +0.98%, discretionary +0.67%, staples +0.54%, industrials +0.18%, energy +0.11% while utilities lost -0.11%. Southbound Connect volume was moderate/high, as mainland investors were active buyers of HK stocks. Tencent was the volume leader seeing 3 to 1 buying, followed by CCB with 7 to 1 buying and Xiaomi 6 to 1 buying. AAC and Sunny had strong buying days as well. Southbound Connect volumes accounted for 7.2% of HK’s total turnover today.

A-Share Update

The Shanghai & Shenzhen also had strong day closing on the day’s high +0.43% and +0.82%, though volume was of -3% day over day and well off the 1 year average. Shanghai did manage to close above 2,900 while Shenzhen continue to above 1,600. Breadth was strong with 2,368 advancers and 1,069 decliners as small and mid caps outperformed large caps by a small margin. The 501 stocks within the MSCI China All Shares gained +0.9% as staples roared +2.18%, communication +2.04%, tech +1.07%, energy +1.01%, healthcare +0.95%, industrials +0.76%, materials +0.64%, real estate +0.61%, discretionary +0.51%, financials +0.36% and utilities +0.09%. Northbound Connect volumes were moderate/light, though foreign investors continued their strong buying. Shenzhen Connect volume and buying outpaced Shanghai’s as the trend continues. Foreign investors bought $640mm of mainland stocks today raising the weekly total to $2.915 billion. Northbound Connect volume accounted for 4.3% of the mainland’s total volume.

A Mainland media source noted that the Zhengzhou Commodity Exchange has started trading soda ash futures. According to the article, a soda ash expert I am not, China is the largest producer and exporter of sodium carbonate having produced and used domestically 27mm tons while exporting 1.4mm tons. Price discovery allowed by the futures should dissipate the price volatility of the “water soluble mineral used in building materials, medicine and textiles.” That’s one to grow on!

Last Night’s Prices & Yields

  • USD/CNY 7.0302 versus 7.0404 Thursday
  • CNY/EUR 7.81001 versus 7.8108 Thursday
  • Yield on 1-Day Government Bond 1.764% versus 1.66% Thursday
  • Yield on 10-Year Government Bond 3.7425% versus 3.7397% Thursday Wednesday
  • Yield on 10-Year China Development Bank Bond 3.57% versus 3.58% Wednesday
  • Commodities were mixed/higher on the Shanghai & Dalian Exchanges with Dr. Copper +0.25%