Daily Posts

Bull Market Breather

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Key News

Asian equities were largely higher with Malaysia having an outsized gain and Thailand, Indonesia, Singapore, India, Taiwan, Hong Kong, and Australia up. Japan and Korea were off. Mainland China was mixed.

Candidly speaking, it was a fairly light night on the news front as Hong Kong and Mainland China equity markets took a bit of a breather off the strong up move since the Phase One announcement.

Like many Chinese visitors to Macau, President Xi flew there directly bypassing Hong Kong, in his visit to the territory for the 20th anniversary of the handover from Portugal. Several media sources noted the glaring absence of Hong Kong in President Xi's speech - although he did meet with Carrie Lam. Premier Li stated, “The State Council fully affirms the laudable efforts the HKSAR’s government has made.” The support for Hong Kong leader Carrie Lam could be a stumbling block to meeting protesters' demands. We wrote yesterday about the interesting divergence between Chinese and Hong Kong domiciled stocks listed in Hong Kong as a result of ongoing demonstrations. Ultimately, Hong Kong needs to address housing and wealth inequality which are the big-picture issues in my opinion.

Bloomberg is reporting that online real estate firm Beike Zhaofang is considering a US IPO that would raise ~$1 billion.

The Ministry of Agriculture and Rural Affairs reported that government pork reserves will be tapped in advance of January’s Chinese New Year in order to meet holiday demand. Pork prices are starting to come off their highs rising only 4.5% in November from October due to a massive pig elimination from African swine flu. This has fueled a rise in CPI and food inflation. Reminds me of the US’ strategic oil reserves but for pork.

The Financial Times had an interesting article that I’ve not seen mentioned elsewhere on US tech companies pushing back on the US government’s effort to limit Huawei tech purchases. Led by Secretary of State Pompeo, the effort is receiving pushback as US tech firms are worried that they would violate anti-trust laws and the coordinated effort would have them acting as a cartel. I’m not doing the article justice so track it down! 5G phones will be packed with US technology whether made by Huawei, Samsung or Apple.

H-Share Update

The Hang Seng bounced around the room to close +0.15%/+40.5 index points at 27,884 as volume shrank 10% day over day but was still above the 1-year average. Breadth was weaker with 19 advancers and 30 decliners though Tencent managed another outsized gain +1.72%/+51.9 index points. Energy giant CNOOC was the day’s biggest gainer +3.48%/+23.4 index points and AIA -0.61%/-16.6 index points. Pork company WH Group was the day’s worst performer as government pork reserves will be tapped sending the stock off -3.83%/-7.9 index points with a mix of auto, pharma and real estate companies nipping at its heels. The Hang Seng China Enterprise Index, the Chinese companies, gained +0.54% while the Hang Seng HK 35 was off -0.41% as the performance disparity we mentioned yesterday between China domiciled and HK domiciled continues. Two days hardly makes a trend but we’ll keep an eye on this.

Alibaba’s Hong Kong share (9988 HK) was off -0.6% overnight. The stock is not in Southbound Connect which should make for a great catalyst at some point. The Hong Kong stocks within the MSCI China All Shares gained +0.5% led higher by energy +1.68%, Tencent powered Communication +1.43%, staples +0.59%, financials +0.45%, materials +0.32%, utilities +0.17% and +0.02%. Discretionary was led lower by weakness in autos -1.06%, tech -0.83%, healthcare -0.53% and real estate -0.03%. Southbound Connect volumes were elevated as buyers outpaced sellers by a small margin. Volume leader CCB had outsized buying (again) while Tencent saw more sellers in apparent profit-taking. As mentioned previously CCB flows are likely driven by an asset allocation decision to buy CCB’s Hong Kong stock which yields 5.24% versus a 10 Year Chinese Gov’t Bond 3.14%. Mainland investors bought $248mm of Hong Kong stocks today while Southbound Connect accounted for almost 7% of HK trading. 

A-Share Update

Shanghai & Shenzhen were flat but sold off into the close diverging -0.18% and +0.04% though Shanghai stayed above 3000 and Shenzen above 1700 levels. Volumes were off -11% but still above the 1-year average while breadth tilted lower with 1,531 advancers and 1,970 decliners. Mega, large and small-cap were off on the day though mid-caps were an island of resiliency. The Mainland stocks within the MSCI China All Shares were off -0.21% as communication gained +1.81%, financials +0.22%, discretionary +0.02% while healthcare was off -1.11%, utilities -1.11%, materials -0.49%, industrials -0.48%, real estate -0.43%, tech -0.26%, staples -0.21% and energy -0.08%. Northbound Stock Connect volumes were strong with buyers out in force (again). Shenzhen Connect volume and buying outpaced its larger sibling the Shanghai. Foreign investors bought $640 million of Mainland stocks today bringing the weekly total to $1.999 billion. Wow! Northbound Connect volume accounted for a little less than 4% of Mainland volume.

Last Night’s Prices & Yields

  • USD/CNY 6.9980 versus 6.9963 yesterday
  • CNY/EUR 7.7851 versus 7.8149 
  • Yield on 1-Day Government Bond 1.959% versus 1.8796% 
  • Yield on 10-Year China Development Bank Bond 3.7525% versus 3.7525%
  • Commodities were mixed with a lower bias on the Shanghai & Dalian Exchanges with Dr. Copper -0.26%