Live from Shanghai!
Asian equity markets were predominantly up with only Australia, Malaysia and Singapore off. Hong Kong and Mainland China were strong outperformers on the day driven by several positive developments. Over the weekend there was talk that China’s financial regulators reaffirmed increased access to credit for smaller firms. We also had the Ministry of Industry and Information Technology announce that subsidies supporting elective vehicles would remain stable, reversing the market consensus that they would be cut. Reports that Kweichow Moutai would increase inventory of China’s favorite beverage in advance of Chinese New Year’s led to a strong rally in liquor stocks.
CNY had a strong day versus the dollar punching through the 6.90 level while foreign investors continued to buy Mainland stocks at a rapid pace.
Hang Seng Indexes Company announced that Hong Kong-listed companies with dual share class structures, also known as weighted voting right structures, will be eligible for inclusion in their indexes, including the Hang Seng Composite. In December, Hong Kong Exchanges & Clearing reached an agreement with the Shanghai Stock Exchange to allow for companies with dual-class share structures to be traded through Stock Connect by Mainland investors for the first time. This should facilitate more Mainland ownership of Hong Kong and US-listed companies, hopefully propelling valuations as fewer shareholders treat such stellar names as proxies for the US-China relationship. Meituan, Xiaomi, and Tencent are poised to benefit from this change and their stocks rose on the news, gaining +3.19%, +4.2%, and +1.96% on the day.
UBS Conference Attendance Reflects China’s Growth
I am currently attending the UBS 2020 Greater China Conference today and tomorrow in Shanghai. This is the 20th anniversary of the conference which led to an overview of how much the conference and China has changed.
- 300 attendees at the original conference compared to today’s over 3,500 attendees
- Tencent was two years old, Alibaba was one year old and Baidu had just been founded
- The entire Mainland stock market was smaller than Alibaba’s market cap today
- China GDP per capita up 10 times
- China’s stocks market second largest globally and bond market third largest
- Financial reforms a major catalyst on the growth of China’s onshore market
- Emphasis on 5G as it is estimated that China will have 600mm users by 2025
- Clean energy growth another higher of focus
The Hang Seng opened higher and moved higher throughout the trading day gaining +1.11%/+316 index points to close just shy of 29k at 28,954. The upward move was accompanied by strong volume +6% from Friday and above the 1-year average and strong breadth of 38 advancers and just 11 decliners. The index was pushed higher by index heavyweights Tencent +1.96%/+63 index points, Ping An Insurance +2.63%/+42.4 index points and China Construction Bank +1.19%/+26.5 index points. The day’s best performer was Hengan International, a baby and adult diaper maker, +3.78%/+5 index points while real estate company Country Garden was off -0.97% as the day’s worst performer. Chinese companies listed in Hong Kong outperformed Hong Kong-domiciled companies as evidenced by the Hang Seng Enterprises Index outperforming the HS HK 35 +1.15% versus +0.87%. The 207 Chinese stocks listed in Hong Kong within the MSCI China All Shares Index gained +1.7% led higher by 16 tech stocks +2.96%, communication +1.81%, healthcare +1.47%, financials +1.24%, discretionary +1.02%, utilities +0.48%, energy +0.35%, staples +0.33% and industrials +0.23%. Real estate and materials were off -0.15% and -0.24% respectively. Southbound Connect volumes were high as Mainland investors were active buyers of Hong Kong stocks.
The Shanghai & Shenzhen overcame a mid-morning swoon rallying in the afternoon session to close on the day’s high +0.75% and +1.36% as both Shanghai and Shenzhen punched through technical areas of resistance at the 3,100 and 1,800 level respectively. Volume increased 4% from Friday and well-above the 1-year average while breadth was strong with 2,652 advancers and 904 decliners. Small and mid caps outperformed large caps by nearly 1%. The 501 Mainland stocks within the MSCI China All Shares Index gained 1.7% led higher by tech +3.88%, staples +1.75%, discretionary +1.6%, real estate +1.5%, financials +1.28%, healthcare +1.26%, materials +1.18%, industrials +1.1%, communications +1.1%, utilities +0.6% and energy +0.52%. Northbound Connect volumes were strong. Meanwhile, Shenzhen buying exceeded buying in Shanghai. We’ve seen this trend develop over the last two months as Shenzhen volume and buying from foreign investors exceeded the Shanghai’s. Foreign investors bought $1.119 billion of Mainland stocks today!
Carlyle is selling 41.1mm shares of China Literature (772 HK) at a discount between 5.6% and 8.5% according to Bloomberg. The sale would raise $206mm for the US PE shop.
Last Night’s Prices & Yields
- USD/CNY 6.89 versus 6.92 Friday
- CNY/EUR 7.66 versus 7.69 Friday
- Yield on 1-Day Government Bond 1.64% versus 1.40% Friday
- Yield on 10-Year Government Bond 3.08% versus 3.08%
- Yield on 10-Year China Development Bank Bond 3.53% versus 3.53%
- Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.04%