Pork May Help China Meet Purchase Commitments, Parcel Delivery Volume Beat Estimates in 2019
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Asian markets were largely lower last night following as geopolitical concerns stemming from the Middle East weighed on market sentiment. The WSJ came out with an article discussing the fact that US pork producers missed an incredible opportunity to sell pork in China as supply was limited due to swine flu. However, they may not have missed the window entirely. Hog inventories are expected to remain constrained for the next two quarters. It is likely that a surge in pork purchases from the United States will help China meet the purchase levels agreed to in the “phase one” trade deal. Some investors have expressed concern that China will be unable to meet the agreed-upon levels, in particular the $80 billion worth of agricultural purchases. This increase was called into question after Han Jun, Vice Minister of Agricultural and Rural Affairs, stated that China would not make an exception for the US on its grain import quotas, which are global.
AIA Insurance (1299 HK) announced that it would be hiring former Ping AN CEO Lee Yuan Siong to serve as its new CEO, who is due to be instated in March. Lee counts Prudential and the Monetary Authority of Singapore among his former employers. Despite its stock price increasing around 100% over the past five years, AIA is currently coping with slowing sales along with the entire Hong Kong insurance market. For many years, Mainland Chinese residents would travel to Hong Kong to take out insurance policies with better terms than those they could find at home. However, unrest in Hong Kong has dramatically decreased the amount of Mainland visitors looking to take out insurance policies. AIA operates in 18 different Asian markets, but has no Mainland presence, whereas Ping An focuses on Mainland China. It will be interesting to see how Lee shapes the insurer, perhaps helping it expand onto the Mainland to recoup lost business.
The State Post Bureau held its 2020 national post conference on Monday, where it noted that 2019 delivery volume grew by 24% YoY, despite official estimates placing the figure at less that 20%. Additionally, the volume of parcels sent from and delivered to rural areas was over 15 billion units in 2019. This very positive growth figure highlights the continued growth of China’s E-Commerce industry and it expansion into lower-tier cities and rural areas. CICC expects parcel delivery volumes overall to grow at around 20% in 2020 as well.
Tesla’s Shanghai Gigafactory made the first delivery of vehicles to Chinese customers. The delivery of the Chinese-made Model 3 had long been awaited by Tesla bulls. Musk announced that Tesla also plans to use China as a testing ground for its first compact SUV, the model Y.
The Hang Seng chopped around last night and ultimately declined -0.8% by the close. However, turnover was up +11.7% DoD and Southbound investors were net buyers of HKD 1.1 billion worth of Hong Kong stocks. Shimao Property gained following an announcement that its management services division will IPO in 2020. Gold miners also rose along with gains in the price of gold following Middle East tensions.
The MSCI China Index, which contains a large amount of Hong Kong-listed stocks, was surprisingly positive on the day rising +0.77%. Meanwhile, the Hong Kong-domiciled stocks in the MSCI China All Shares Index were down by -0.42%.
Tencent (700 HK) saw net sellers as the stock price fell -0.93%. However, the tech company may benefit from a boost to revenue from its fintech business following the PBOC’s decision to distribute interest at the rate of 0.35% on custodian cash, which previously earned no interest. CICC expects Tencent to see a quarterly revenue increase of RMB 2.5B due to the interest policy change alone.
Mainland markets were down slightly on geopolitical woes as the Shanghai and Shenzhen both declining by -1.2%. Northbound Connect Investors bought a net RMB 1.4 billion worth of Mainland-listed stocks last night. Connect investors were net buyers in Shenzhen and net sellers in Shanghai. Oil and gas names gained following a rise in the price of oil.
Cyclicals, especially semiconductor stocks, might be beginning to see a comeback thanks to a thawing in trade tensions. This developing trend was exemplified by the performance of Maxscend Microelectronics (CH), whose stock rose +8.15% on the day, leading the MSCI China Index to its outlier status in a generally negative day.
China’s Agricultural Ministry said that inventories of breeding sows and hogs rebounded +2.2% MoM in December. However, inventories are still significantly depleted relative to demand.
Last Night’s Prices & Yields
RMB saw no change against the dollar, but a slight decline against the Euro.
- RMB/USD 6.95 v. 6.95 yesterday
- RMB/EUR 7.72 v. 7.74 yesterday
- Yield on 1-Day Government Bond 1.42 v. 1.42 yesterday
- Yield on 10-Year Government Bond 3.13 v. 3.14 yesterday
- Yield on 10-Year CDB Bond 3.58 v. 3.58 yesterday