Key News

Mama warned there would be days like this. Last night was ugly. Coronavirus sentiment notwithstanding, Samsung’s tepid earnings weighed heavily on tech shares regionally. Samsung (005930 KS) sank -3.21% dragging South Korea down by nearly -2%. Taiwan opened for the first time since last Wednesday with a thud -5%. Japan sank over 1% while the rest of the region was off less than 1%.

Reports that Lunar New Year hours would be extended for several cities in order to contain the virus weighed heavily on sentiment as the virus has killed 170 with 7,700 infected. Markets are still expected to reopen next Monday though there is concern that China’s lockdown will have an effect on China’s and the global economy. There is really only one way to describe today: pukefest. I understand why Macao stocks were off as visitors to Macao have fallen by 90% year over year. I understand why airlines were off as flights to/from China and Hong Kong are cancelled. Ditto for anything tourism-related such as hotels and restaurants though the indiscriminate selling even hit healthcare stocks. Apple suppliers were hit on fears their supply chain could be compromised. The only positive I could find today was microcap stock China Health Group (8225 HK), which surged +388% on news that the company’s HIV drug was effective in treating the virus.

Sentiment regionally is evidently very poor as those closest to the outbreak are scared for obvious reasons. Expert opinion says that the virus would affect the elderly who have weakened immune systems and the young who are still developing an immune system the most. With China’s high rate of smoking, I would assume a respiratory illness could have an outsized effect. The coronavirus’ mortality rate is far below SARS, though it has infected more. I would suspect that next week will continue to be volatile though one broker called an element of the coronavirus “media hype”. That being said, the Chinese government is not taking any chances. There is chatter about the PBOC cutting rates and policymakers approving more economic stimulus than was expected.

H-Share Update

The Hang Seng opened lower -0.48% but quickly descended further to close -711 points/-2.62% at 26,449. So much for th4e 27k level holding. Breadth was another goose egg with zero advancers and 50 decliners while volume was flat day over day well above the 1-year average. Index heavyweights led the index lower with AIA -3.09%/-80.9 index points, Tencent -2.14%/-63.9 index points and China Construction Bank -3.07%/-60.2 index points. The day’s “best” performer was Link REIT -0.88%/-4.4 index pints while Apple suppliers AAC Technologies and Sunny Optical were off -7.51% and -7.44% on concerns that production lines will be affected. Chinese companies underperformed Hong Kong companies slightly -2.77% and -2.27% using the HS China Enterprises Index and the HS HK 35 Index as proxies. While the China Enterprises Index had no advances and 50 decliners and the HK 35 had 1 advancer and 29 decliners, the broad Hang Seng Composite only had 22 advancers and 452 decliners. The Chinese companies within the MSCI China All Shares Index declined -2.92% as utilities -1.99%, communication -2.42%, financials -2.52%, industrials -2.58%, real estate -2.76%, materials -3.3%, discretionary -3.37%, staples -3.87% and healthcare -4.41%. Uncle! Southbound Connect remains closed until next Monday.

A-Share Update

---Mainland markets are closed until Monday---

Last Night’s Prices & Yields

---China’s FX Market Has Been Closed Since last Friday Until Next Monday--

• CNY/USD 6.94 last Thursday
• CNY/EUR 7.63 last Thursday

---China’s Bond Market Has Been Closed Since last Friday Until Next Monday--

• Yield on 1-Day Government Bond 1.43% last Thursday
• Yield on 10-Year Government Bond 2.99% last Thursday
• Yield on 10-Year China Development Bank Bond 3.42 last Thursday