Daily Posts

December 15th Deadline Looms

Key News

Asian equity markets were largely higher though volumes were light. Japan, Mainland China, Taiwan, South Korea, Australia, Indonesia and India managed gains while Hong Kong, Singapore, Malaysia and Thailand were off. The news flow was quiet in advance of next Sunday’s December 15th deadline for increased US tariffs on Chinese goods. Hong Kong’s weekend rally of 800,000 was largely peaceful.

The day’s big winner were “old” economy stocks on chatter that infrastructure projects could pick up. Real estate, materials and industrials outperformed, while energy bounced on OPEC cuts. I’ve seen a few reports that cyclicals could rebound in China driven by low valuations though only time will tell. Autos were off on poor results as EV sales dragged discretionary down. Healthcare had a very bad day as investors increasingly believe that another round of drug price cuts linked to the national drug procurement/buying would weigh on the sector. There are reports that China will remove foreign made software from all government agencies. All in all, the only thing that matters is the trade deadline.

November Trade Data

November Foreign Reserves: $3.095 trillion versus estimate $3.1 trillion and Oct’s $3.105 trillion

Takeaway: Market reaction was a yawn……

USD Year over Year

Imports 0.3% versus estimate -1.4% and Oct’s -6.4%
Exports -1.1% versus estimate 0.8% and Oct’s -0.9%
Trade Balance $38.73B versus estimate $44.5B and Oct’s 42.81B

RMB Year over Year

Imports 2.5% versus estimate 0.9% and Oct’s -3.5%
Exports 1.3% versus estimate 1.9% and Oct’s 2.1%
Trade Balance 274.2B versus estimate 300B and Oct’s 301B

Takeaway: Nothing surprising here as the trade war continues to have some impact. US imports ticked up slightly as economists speculate that agriculture purchases may have helped while exports to the US ticked down slightly. The US media would have you believe China’s economy is reliant on the US. However, China’s economy is becoming geared to consumption as opposed to manufacturing. Exports to regional countries (ASEAN) accounted for 16.2% of November exports, while the EU accounted for 15.6% versus the US’ 16%. One factor is that Hong Kong accounted for 12% of China’s exports. Exports to Hong Kong are subsequently reshipped. The data was released over the weekend, but didn’t appear to be a major factor in Monday trading.

H-Share Update

The Hang Seng chopped around to close -0.01%/-3.6 index points to close at 26,494 as volumes slumped -15% from Friday. Breadth was mixed with 23 advancers and 24 decliners as China Mobile gained +1.18%/+13.1 index points, CSPC Pharma -5.1%/-12.3 index points and AIA -0.45%/-11.6 index points. China Overseas Land & Investment was the day’s best performer +2.02%/+6.5 index points followed by several other real estate companies while healthcare, pork giant WH Group, and gaming stocks were off. The 207 Hong Kong stocks within the MSCI China All Shares Index gained +0.11% led by real estate +2.21%, industrials +0.84%, energy +0.68%, materials +0.46%, communication +0.33%, tech +0.22% and financials +0.05%. Healthcare slumped -2.43%, utilities -1.38%, discretionary -1.36% and staples -0.29%. Southbound Connect volumes were moderate as Mainland investors continued their buying of Hong Kong stocks. Tencent was the volume leader for the first time in recent memory, with 5 to 1 buying, CCB’s streak continued with 10 to 1 buying. Real estate company Sunac saw 1.5 to 1 buying. Southbound Connect accounted for 8.5% of Hong Kong’s turnover.

A-Share Update

The Shanghai & Shenzhen managed to squeak out small gains of +0.08% and +0.01% as volumes +11.6% from Friday and just off the 1-year average. Breadth was positive 1,819 advancers and 1,666 decliners as large, mid and small caps were all over the place. The 501 Mainland stocks within the MSCI China All Shares Index were off -0.18% as real estate had a strong day +2.21%, energy +0.94%, materials +0.68%, utilities +0.26%, communication +0.25%, industrials +0.19% and tech +0.18%. Healthcare slumped -1.94%, staples -0.95%, financials -0.38% and discretionary -0.19%. Northbound Connect volumes were moderate though foreign investors continued their buying of Mainland stocks. Shenzhen Connect volumes exceeded Shanghai, though Shanghai’s inflows exceeded Shenzhen in a rare outperformance. Foreign investors bought $481 million of Mainland stocks today while Northbound Connect accounted for 4% of mainland turnover.

China Postal Bank will list tomorrow in Shanghai (601658 CH). I’ll do some work overnight as I don’t know much about the company, though I did notice it has 168k employees.

Last Night’s Prices & Yields

  • USD/CNY 7.04 versus 7.04 Friday
  • CNY/EUR 7.80 versus 7.78 Friday
  • Yield on 1-Day Government Bond 1.92% versus 1.76% Friday
  • Yield on 10-Year Government Bond 3.19% versus 3.18% Friday
  • Yield on 10-Year China Development Bank Bond 3.59% versus 3.59% Friday
  • Commodities were higher on the Shanghai & Dalian Exchanges with Dr. Copper +1.35%