Key News

Asian equities were largely up as Fed Chair Powell’s positive take on the US economy lifted markets geared towards the global economy. Hong Kong, Taiwan, and Korea all gained more than 1%, while Australia, India, Singapore, Malaysia, and Thailand were up on the day. Indonesia, Japan, and Mainland China were off slightly. Hong Kong’s move was the first time such a sizable gain was accompanied by strong volume in recent memory as shorts likely covered in a strong move. Tencent was a big contributor as their partnership to distribute Nintendo’s Switch game console is reportedly going well. Every sector in Hong Kong was up, though protest concerns linger and their effect on the local economy continues. Without a leadership shakeup in Hong Kong, I remain a bit skeptical of the city’s ability to shake its ongoing funk.

Mainland China was off on light volumes as investors wait for not only the US tariff deadline, but also a major economic policy meeting, The Central Economy Work Conference, which provides a clue to government economic policy for 2020 and ends today. Investors appear to believe that real estate restrictions might be loosened. Northbound Connect flows continue to amaze me. It was another monster night with over $900mm going into Mainland stocks. As we discussed yesterday, I assume this is due to active managers window dressing their portfolios in advance of year-end.

H-Share Update

The Hang Seng ripped +1.31%/+348.7 index points to close at 26,994 accompanied by strong volumes +22% day over day and above the 1-year average for the first time in two weeks. Breadth was strong with 48 advancers and only 2 decliners. Tencent +2.65%/+73.6 index points, AIA +2.24%/+59.7 index pints and HSBC +0.95%/+25 index points. Galaxy Entertainment was the day’s best performer +4.53%//+16.11 index points while CSPC Pharma+2.88%//+7.2 index points. China Overseas Land was off -0.52%/-1.7 index points with Apple supplier Sunny Optical -0.14%/-0.43 index points. The Hong Kong stocks within the MSCI China All Shares Index gained +1.16% led higher by Tencent’s strong move pulling communications +2.27%, utilities +1.78%, energy +1.1%, healthcare +1.07%, staples +1%, industrials +0.8%, financials +0.71%, tech +0.62%, real estate +0.46%, discretionary +0.45% and materials +0.31%. Southbound Connect volumes were elevated as Mainland investors were net sellers of Hong Kong stocks for the first time in a long time. The total amount sold was fairly small at only $25mm though it is interesting they sold on such a strong up day. Mainland skepticism? Maybe. Southbound turnover accounted for nearly 7% of Hong Kong’s turnover.

A-Share Update

The Shanghai & Shenzhen were off slightly -0.3% and -0.19% to close at 2,915 and 1,636 as volumes slumped to -2% day over day, but saw the lowest turnover this week. Breadth was fairly atrocious with only 1,184 advancers and 2,379 decliners as large and mid-caps slumped, though small caps managed to outperform slightly. The Mainland stocks within the MSCI China All Shares Index were off -0.28% as utilities, tech and healthcare managed gains of +0.84%, +0.15% and James Bond +0.07%. Unfortunately there was a little more action on the down side with staples -0.88%, real estate -0.75%, energy -0.67%, communication -0.64%, industrials -0.26%, financials -0.25%, materials -0.2%, and discretionary -0.19%. Another monster night in Connect trading as Shenzhen and Shanghai had moderate volume, but very strong buying. Shenzhen beat its bigger sibling on volume and buying in what has become a very strong trend. Foreign investors purchased $926mm of Mainland stocks today! I’ve reached out to a friend at the Hong Kong stock exchange to hear if he has any color on the inflows.

Last Night’s Prices & Yields

• CNY/USD 7.039 versus 7.034 yesterday
• CNY/EUR 7.807 versus 7.792 yesterday
• Yield on 1-Day Government Bond 1.901% versus 1.815% yesterday
• Yield on 10-Year Government Bond 3.170% versus 3.178% yesterday
• Yield on 10-Year China Development Bank Bond 3.57% versus 3.59% yesterday
• Commodities were mixed with softs soft and metals higher on the Shanghai & Dalian Exchanges with Dr. Copper +0.74%