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US Asset Management Giant’s Prediction on China

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Key News

Asian equities were broadly higher with every market up though the Mainland market took a moment to catch its breath following a strong week and month. Shanghai is bumping into the 3,100 level while the Shenzhen is close to the 1,800 level. There wasn’t much single stock news, but we are nearing the precipice of earnings season.

A Mainland media source had an article based on comments from US asset management giant Vanguard’s Asia Pacific chief economist. Wang Qian was quoted that “Shanghai and Shenzhen bourses will return between 7.5 percent and 9.5 percent a year over the next 10 years, outpacing American markets by a wide margin.” He expects US stocks to return between 3.5% and 5.5%.

One area that I will be studying up on this week is India’s non-banking financial companies (NBFCs) following the institutional investing conference I attended earlier this week.

TGIF! I am off to China this Saturday for an institutional investing conference. It should be a great event which I will report on from Shanghai and Beijing.

H-Share Update

The Hang Seng managed to bounce around the room +0.27%/+62.8 index points to close at 28,638. For the week, the index is up +0.66% after Wednesday’s tanking on US-Iran concerns. Breadth was mildly positive with 25 advancers and 21 decliners as volume picked up nearly 10% day over day and was well above the 1-year average. Tencent had another strong day as the best performer for the second time this week +2.21%/+70 index points, China Construction Bank +0.75%/+16.4 index points and AIA Group +0.47%/+13.4 index points.

China Resources Land was the worst performer, tanking -3.38%/-10.8 index points while energy names where  off with PetroChina -2.2%/-5.6 index points, China Shenhua Energy -1.59%/-2.6 index points and CNOOC -1.02%/-7.4 index points. Hong Kong-domiciled companies outperformed China-domiciled companies as the HK 35 +0.34% compared to the China Enterprises Index -0.12%. The disparity was driven by the poor performance of Mainland energy and real estate companies while Hong Kong real estate had a positive day. The 207 Hong Kong-listed Chinese companies within the MSCI China All Shares Index gained +0.27% led by Tencent’s rally, pulling communication +1.65%, tech +0.9%, industrials +0.44%, utilities +0.22%, discretionary +0.195 and financials +0.04%. Chinese real estate companies were very weak off -1.98%, energy -1.17%, healthcare -0.77%, staples -0.25% and materials -0.09%.

Southbound Connect volumes were elevated as buyers were very active. Volume leader real estate company Sunac had 4 to 1 buyers to sellers after announcing a private placement below the current share price, Tencent 6 to 1 buyers and CCB 2.5 to1 buyers. Chinese investors bought a healthy $548mm of Hong Kong stocks today while Southbound Connect turnover accounted for nearly 10% of Hong Kong volume.

A-Share Update

The Shanghai & Shenzhen were off -0.08% and -0.15%, respectively, as volumes slumped just over 9% day over day but were above the 1-year average. Breadth was moderate with 1,282 advancers and 2,337 decliners as large caps outperformed while mid and small caps took a breather. The 501 Mainland stocks within the MSCI China All Shares Index gained +0.11% led by tech +0.73%, healthcare +0.66%, staples +0.61% and financials +0.11%. Real estate was off -1.1% followed by energy -0.97%, communication -0.42%, industrials -0.25%, utilities -0.22%, materials -0.11% and discretionary -0.01%.

Northbound Connect volumes were strong again as foreign investors were active buyers of Mainland stocks. The Shenzhen Connect saw higher volume and buying pressure than its older sibling Shanghai Connect. Foreign investors bought $426mm of Mainland stocks today bringing the weekly total to $2.992 billion. Foreign trading via Connect accounted for just over 4% of Mainland turnover. Mainland volume leader BOE Technologies traded 703 million shares today, while the most heavily traded stock by USD value was Wuliangye Yibin Co (000858 CH), which traded $825 million.

Last Night’s Prices & Yields

  • USD/CNY 6.92 versus 6.93 yesterday
  • CNY/EUR 7.69 versus 7.70 yesterday
  • Yield on 1-Day Government Bond 1.40% versus 1.42% yesterday
  • Yield on 10-Year Government Bond 3.08% versus 3.12% yesterday
  • Yield on 10-Year China Development Bank Bond 3.53% versus 3.57% yesterday
  • Commodities were mixed/lower on the Shanghai & Dalian Exchanges with Dr. Copper flat