Key News

Asian equities jumped following President Trump's signing off on a Phase One deal. Japan, Hong Kong, and Mainland China had very strong days. The WSJ’s report on the trade deal lends credence as we’ve often mentioned. While $50B of agriculture goods purchases is a lofty goal for the deal, it becomes feasible when airplanes and oil/natural gas are included. China has not confirmed the trade deal, but that’s not surprising as they won’t make an announcement until the deal is actually signed.

There is no question that the trade deal fueled equity markets higher. However, it is worth noting that another factor was the China Economic Work Conference (CEWC), which concluded yesterday. Just as Fed readers hang on every word in FOMC releases, the same is true for important policy meetings such as the CEWC. While official growth targets will not be released until March, officials that attended the conference reaffirmed a commitment to stimulus and structural reform, while expressing the need to prepare economic ‘contingency plans’ to offset risk. Financials were a key beneficiary as further opening up will occur, while Macau stocks rallied on talk of diversifying its economy beyond gaming.  Maybe Macau will follow Las Vegas, which has evolved into a broad-based entertainment destination.

H-Share Update

The Hang Seng opened higher and never looked back, gaining +2.57%/+693 index points to close at 27,687. Volumes surged +29% day over day and well above the 1-year average while 49 stocks advanced and only 1 declined. Index heavyweights led the charge higher with AIA +3.64%/+100.4 index points, Tencent +3.44%/+98.9 index points and HSBC +2.99%/+81.43%. Macau gaming stock Galaxy Entertainment was the best performer +6.92%/+26.2 index points with competitor Sands China on its heels +5.31%/+18.04 index points. CSPC Pharma was the only stock off -0.45%/-1.1 index points. The 207 Hong Kong stocks within the MSCI China All Shares Index +2.36% led higher by Tencent +3.28%, energy +2.66%, financials +2.54, industrials +2.26%, tech +1.91%, materials +1.75%, real estate +1.65%, utilities +1.64$%, staples +1.38%, discretionary +1.15% and healthcare +0.75%. Southbound Connect volumes were elevated with nearly 3 to 2 buyers to sellers. Volume leader Tencent saw buyers outpace sellers by a small margin, Xiaomi had 3 to 1 buyers while CCB’s massive inflows came to end as the stock had nearly 3 to 1 sellers. Mainland investors bought a total of $314mm of Hong Kong stocks. Southbound Connect accounted for nearly 7% of Hong Kong turnover.

A-Share Update

The Shanghai & Shenzhen went from lower left to upper right +1.98% and +1.78% as volumes jumped 27% from yesterday and above the 1-year average. Breadth was absurdly strong with 3,120 and only 519 decliners as large caps outperformed mid and small caps though it was a strong day. The Mainland stocks within the MSCI China All Shares Index gained +2.71%, led higher by financials 3.8%, healthcare +2.63%, industrials +2.62%, discretionary +2.58%, staples +2.47%, communication +2.38%, tech +2.19%, real estate +2.1%, materials +1.88%, utilities +1.68% and energy +1.6%. Northbound Connect volumes were strong with foreign investors in a festive buying mood. Reversing a long-running trend, Shanghai Connect volumes and buying actually outpaced Shenzhen. Foreign investors bought a total of $756mm of Mainland stocks today bringing the weekly total to $2.926 of foreign buying of Mainland stocks. Northbound Connect accounted for 5.5% of the Mainland’s turnover.

Last Night’s Prices & Yields

• USD/CNY 6.99 versus 7.04 yesterday
• CNY/EUR 7.80 versus 7.81 yesterday
• Yield on 1-Day Government Bond 1.90% versus 1.90% yesterday
• Yield on 10-Year Government Bond 3.15% versus 3.17% yesterday
• Yield on 10-Year China Development Bank Bond 3.72% versus 3.71% yesterday
• Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.24%