Key News

Asian equities were mixed as President Trump’s impeachment weighed on sentiment, but failed to have a meaningful impact. Japan, Hong Kong, Taiwan, Singapore, Australia, and Indonesia were slightly off while Mainland China, Korea, India and Malaysia were somewhat up. Tech was off in Hong Kong and China on concerns that the impeachment will derail US-China trade talks. Ministry of Commerce spokesperson Gao Feng put this worry to bed by stating that US and China communications are very strong going into the Phase One signing. There were also reports that China is rolling back tariffs on US imports overnight.

Traders noted Hong Kong and China didn’t breach key support levels as a breather was overdue. It was a quiet night though tomorrow won’t be for traders. Tomorrow will be a massive volume day globally due to Quad witching (futures and stock options expiring) and S&P and FTSE Russell rebalances. Watch BABA at the close as Alibaba’s larger free float requires passive FTSE-benchmarked index funds and ETFs to raise their position. I’m not saying BABA will go higher or lower, but its volume will. IQ is another name to watch.

This month’s Foreign Policy magazine includes a must-read article by Fareed Zakaria titled “The New China Scare Why America Shouldn’t Panic About its Latest Challenger”. As investors, we apply science to our portfolios, whereas many media articles are detached from the facts. This is precisely why I am highlighting this article. Zakaria compares today’s political environment in China to that of Japan in the 1980s. It also highlights the vast disparities between the Soviet Union’s global domination plans and foreign military efforts with China’s. I learned that China is now the 2^nd largest contributor to the UN’s budget and the #1 country in peacekeeping missions. China’s military hasn’t engaged in a foreign military conflict in four decades. More for those of us in the investment space was his addressing many of the media’s sound bites such as forced corporate espionage, intellectual property and technology transfers. On technology transfers he quoted the US-China Business Council, which stated IP ranked 6^th of US company concerns operating in China versus #2 in 2014. When executives were asked: “Has your company been asked to transfer technology to China?” 95% said no. 95%!!! Wow. I invite you to check out the article.

China increased the amount of money Mainland residents can move to Macau to match Hong Kong’s maximum transfer amount, another sign of the former’s rising prominence at the latter’s expense.

H-Share Update

The Hang Seng fell in the morning session to a low of -0.75% followed by an afternoon rebound to close -0.3%/-83.7 index points though volume plunged -16% and back below the 1-year average. Breadth was off with only 13 advancers and 32 decliners as AIA -1.41%/-37.8 index points, Tencent -0.53%/-15.8 index points and Hong Kong Exchange Group (HKEX) -1.01%/-9.3 index points. Wharf Real Estate was the day’s best performer +1.59%/2.6 index points while Apple supplier AAC was off -2.37%/-3.1 index points. Hong Kong was a fairly universal as both Chinese domiciled companies and Hong Kong domiciled companies as evidenced by Hang Seng Enterprise and Hang Seng Hong Kong 35 off -0.35% and -0.34%. The Hong Kong stocks within the MSCI China All Shares Index were off -0.56% with every sector off with healthcare -0.13%, discretionary -0.28%, financials -0.34%, energy -0.38%, communication -0.52%, industrials -0.7%, real estate -0.73%, staples 0.79%, tech -1.19%, materials -1.21% and utilities -1.75%. Southbound Connect volumes were moderate with buyers outpacing sellers. Volume leader CCB saw 10 to 1 buyers, Tencent 3 to 2 buyers and Xiaomi buyers slightly exceeded sellers. Mainland investors bought $210mm of Hong Kong stocks while Southbound Connect accounted for 7% of Hong Kong turnover.

A-Share Update

The Shanghai & Shenzhen chopped around to close 0.0% and +0.21% as volumes slipped -13% though still above the 1-year average. Breadth was surprisingly strong with 2,595 advancers and 1,000 decliners as large, mid and small caps were universally off. The Mainland stocks within the MSCI China All Shares Index were off -0.28% as communications +0.91%, energy +0.81%, real estate +0.51%, industrials +0.14%, healthcare +0.09% and utilities +0.03%. Tech was off -1.41%, staples -0.84%, financials -0.27%, materials -0.14% and discretionary -0.09%. Northbound Connect volumes were moderate/high as foreign investors were active buyers. Shenzhen volume exceeded Shanghai’s though Shanghai buying exceeded Shenzhen very slightly. Foreign investors bought $504mm of Mainland stocks today while Northbound Connect volume accounted for just under 4% of Mainland turnover.

Ant Financial announced that Simon Hu will assume the role of CEO as Eric Jing remains executive chairman, but relinquishes the CEO title. Hu had led Alibaba Cloud, which has become immensely successful. Those of us waiting for Ant’s IPO, however, may have been disappointed that the new CEO lacks a deep financial background.

The WSJ’s resident China bear Nathan Taplin had….drum roll….wait for it….a negative China article today! Wow a surprise! Besides Taplin, my favorite journalist (note sarcasm) is Gordon Chang who wrote a book titled “The Coming Collapse of China” in 2001!!!! A broken clock is right twice a day while Mr. Chang hasn’t been right once in nearly two decades. What an “expert”.

Last Nights Prices & Yields

• CNY/USD 7.01 versus 7.01 yesterday
• CNY/EUR 7.79 versus 7.79 yesterday  
• Yield on 1-Day Government Bond 2.07% versus 1.96% yesterday
• Yield on 10-Year Government Bond 3.21% versus 3.21% yesterday
• Yield on 10-Year China Development Bank Bond 3.62% versus 3.63%
• Commodities were mixed on the Shanghai & Dalian Exchanges with Dr. Copper -0.16%