Daily Posts

Yesterday’s Reports of Civilization’s Demise Were Greatly Exaggerated

Key News

Asian equity markets were largely higher after yesterday’s hysteria surrounding the coronavirus. Japan, Hong Kong, Mainland China, Taiwan, Korea, Australia, and Singapore were up while India, Malaysia, Thailand, and Indonesia were off. Markets were off in early trading, especially in Hong Kong and Mainland China. However, they did a 180 following a 10 am press conference from the National Health Commission. The press conference was very transparent on the nature of the respiratory virus and the extent of its spread. Authorities articulated strong measures to stop its spread, which markets cheered.

The Hong Kong and Mainland markets have had a great run, which made them more than overdue for a correction. The combination of Chinese New Year and coronavirus sparked the correction on Tuesday, while Moody’s Hong Kong downgrade didn’t help. It is difficult to know if we are out of the woods completely as the media has fueled fear nearing that of a zombie apocalypse. 1,600 Americans have died this flu season for comparative purposes. Hopefully, you took advantage of yesterday’s dip to add Chinese stocks. Apple suppliers had a strong day on chatter that a new, low-cost iPhone will be announced in March (wish I hadn’t bought a new phone a month ago….). Tencent had a nice day after announcing the purchase of Norwegian gaming company Funcom NV for $148mm, according to Bloomberg. Tencent’s founder and CEO Pony Ma announced yesterday that he sold 1mm shares of his company, but still owns 814mm shares/8.53% of the company.

In 2018 the Global Industry Classification Standard (GICS) index sectors went through a significant change as technology became hardware/software, online media became communications and e-commerce companies became consumer discretionary. Notice how many technology analysts are opining on Amazon or Alibaba? It doesn’t appear that many sell-side analysts got the message. Additionally, I can’t help but notice the reliance on indices such as MSCI China (30% held in Tencent Alibaba) to describe China or the Hang Seng Index (only 50 stocks) to describe Hong Kong. I’m not helping by quoting the Hang Seng below though I’ve migrated to the MSCI China All Shares as a better representation of US, Hong Kong, and Mainland Chinese companies. How well can we trust a strategist who doesn’t use MSCI’s definition of Chinese A Shares? Something to think about.

H-Share Update

After yesterday’s fall of -2.81% it looked like another swoon was in the works as the Hang Seng was off -0.17% by mid-morning before rallying higher the reminder of the day. The index closed +1.27%/+355 index points to close at 28,341 as volume fell -23% day over day though still above the 1-year average. Breadth was strong with 42 advancers and only 6 decliners as China Mobile +3.66%/+47.2 index points, Tencent +1.45%/+45.3 and AIA Group +1.41%/+38.9 index points. Apple supplier Sunny Optical was the day’s best performer +5.01%/+15.6 index points while Link REIT was off -0.96%/-5 index points. Chinese companies outperformed Hong Kong companies with the former +1.86% and the latter +0.67% using HS China Enterprise and HS HK 35 as proxies. The Chinese companies listed in Hong Kong within the MSCI China All Shares Index gained +1.87% led higher by tech +4.64%, utilities +2.71%, discretionary +2.67%, staples +2.18%, real estate +2.09%, healthcare +1.83%, communication +1.74%, materials +1.53%, energy +1.4%, financials +1.36% and industrials +1.32%. Southbound Connect is closed and will remain so until next Friday.

A-Share Update

The Shanghai & Shenzhen opened lower and reached mid-morning lows of -1.66% and -1.97% before reversing course to close +0.28% and +0.72%, respectively. Volumes increased +2% day over day, which was well above the 1-year average. Breadth was more mixed with 1,699 advancers and 1,881 decliners as mid-caps and small caps outperformed large-cap. However, sector dispersion was also a key driver of performance today. The Mainland stocks within the MSCI China All Shares Index gained +0.71% led higher by tech +3.58%, real estate +1.78%, industrials +1.18%, discretionary +0.63%, materials +0.38%, financials +0.27% and energy +0.18%. Communications were off -0.10%, staples -0.18%, utilities -0.51% and health care -0.99%. Northbound Connect volumes were elevated though trading was mixed as foreign investors sold $110mm of Mainland stocks. It appears that a small number of large trades were sold, but that overall activity was tilted toward buying.

Sell-side analysts appear to be defending both TAL and EDU post-earnings though I’m keeping an eye on any changes.

Meituan Diangping (3690 HK) announced the retirement of co-founder Wang Huiwen.

Last Night’s Prices & Yields

  • USD/CNY 6.91versus 6.91 yesterday
  • CNY/EUR 7.66versus 7.67 yesterday
  • Yield on 1-Day Government Bond 1.54% versus 1.50% yesterday
  • Yield on 10-Year Government Bond 3.03% versus 3.03% yesterday    
  • Yield on 10-Year China Development Bank Bond 3.46% versus 3.45% yesterday
  • Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.31%