Daily Posts

Super Bowl Sunday Is Just A Prelude To The Real Action

Key News

There was a sliver of hope overnight as Japan, Taiwan and Australia managed to close in the positive. Meanwhile, Korea, Indonesia and the Philippines were hit hard falling over -1%, nearly -2% and nearly -3% respectively. Samsung was off -1.4% after its earnings Thursday which weighed on South Korea. The rest of the region was off by less than 1%. Investors are no longer dumping everything and becoming a little more discerning.

If you are stuck at home, what are you going to do? You would likely play video games, download movies, get food delivered and maybe order supplies online. Right? What am I not going to do? Buy real estate, go to the mall, travel by rail or airline, eat at restaurants and stay in hotels. Hong Kong opened higher but slid over the course of the trading day. One broker noted that Japan and the US’ recommendation not to travel to China weighed on sentiment.

Mainland markets will open Sunday night NYC time and are expected to drop -7.5%. There is chatter that the National Team will be buyers Monday. The National Team, Chinese institutional investors affiliated with the government, tends to buy Chinese stocks during market selloffs. While many will say this constitutes meddling in markets, they did very well in 2015 and are likely to see some bets pay off from coronavirus troubles. I think I might take a page out of their book. I’ll be watching the markets Sunday night while my Bay Area wife roots for her 49ers. At the same time, our good friend Matt is a big Chiefs fan. Regardless of the action in Miami, Shanghai and Shenzhen will be getting my attention as well!

Have you seen a doctor interviewed or mentioned in a coronavirus telecast or media article? I haven’t, which is shocking. Maybe scary headlines are good business compared to presenting a balanced perspective. I honestly cannot recall seeing one doctor interviewed. I spoke to a biotech/virus expert who helped shape my opinion that the coronavirus will, unfortunately, affect those with weak immune systems (i.e. the elderly) and those with immune systems not fully formed (i.e. the young) the most. Add in China’s high smoking levels with respiratory disease and that makes for a tragic human toll.

So, where do we go for good information? An institutional broker mentioned Johns Hopkins CSSE’s blog on coronavirus cases, deaths and those who have recovered. From examining the website, you quickly recognize that there is a high concentration of coronavirus in Hubei province. And yes, just like the flu, you can recover from coronavirus. This is evidenced by the low mortality rate compared to SARS. The WHO website’s China section had good information as well.  I Googled “what do doctors think about coronavirus”. One surprising result was from the UK’s gossip tabloid the Daily Mail. Surprisingly, they interviewed a doctor who shared her thoughts: “There is some hysteria, as there often is in the media with these things, but this virus appears to be milder than SARS – it appears to be less lethal,’ Dr. Alexander said. So, most experts say that coronavirus is not a repeat of SARS “Global travel so easy these days it’s not surprising we have confirmed cases in Australia and other countries. It’s not a surprise and panic isn’t helpful or necessary,” she said.

South China Morning Post (SCMP) reported that Alibaba, Tencent and Meituan Dianping have donated $432mm collectively, Baidu 300mm renminbi, Bytedance 200mm renminbi, Xiaomi 10mm renminbi, Huawei 10mm renminbi, Alibaba founder Jack Ma $14mm and 80 companies donating 1.2 billion renminbi in support containment and treatment efforts surrounding coronavirus.

January PMI Data

Manufacturing PMI 50 versus estimate 50 and December’s 50.2
Non-Manufacturing PMI 54.1 versus estimate 53 and December’s 53.5

Takeaway: The “official” January data from the National Bureau of Statistics was a positive speed bump that was largely ignored by investors as coronavirus sentiment and its economic fallout weigh on Hong Kong’s protest-impaired stock market. The survey behind the release is a broad data set focused on large companies. Of course, the survey does not include the rapid escalation of the coronavirus. Q4 economic data exhibited firming and positive trends, leading many to believe China’s economy was coming out of a trough. Chatter is increasing that economic policies to support the economy are coming. Trade war support stimulus is apt to be extended for coronavirus as well. Hong Kong’s tourism industry had already been left for dead and will likely only get worse. Investors should look carefully at their HK exposure in my opinion as sentiment in the city is awful.

H-Share Update

The Hang Seng opened higher +1.17% last night but traveled from upper left to lower right over the course of trading to close -0.52%/-136 index points at 26,312. Breadth wasn’t a goose egg, which I suppose is an improvement with 12 advancers and 35 decliners as volume declined -17% from yesterday though well above the 1-year average. Index heavyweights weighed on the index with Ping An Insurance -1.44%/-21.6 index points, AIA Group -0.7%/-18.2 index points and China Construction Bank -0.83%/-16.2. Macau casino operator Sands China was the day’s best performer +1%/+5.2 index points and China Petroleum was the day’s worst performer -2.36%/-7.1 index points though CSPC Pharma was close -2.26%/-5.5 index points. Tencent gave up a gain of +2.61% in morning trading to close -0.52%. Hong Kong companies outperformed Chinese companies -0.13% versus -0.82% using the HS HK 35 Index and HS China Enterprises Index as proxies. The Chinese companies within the MSCI China All Shares Index were off -0.7% as consumer discretionary managed a gain +0.57%, led higher by Meituan Dianping’s +2.53% gain and real estate +0.04%. Staples were off -0.41%, communication -0.53%, tech -0.76%, healthcare -0.83%, financials -0.91%, industrials -1.11%, utilities -1.38%, energy -1.47% and materials -2.02%. Southbound Connect is still closed.

The SCMP had an interesting article on the Hang Seng Index’s consultation on including secondary listings such as Alibaba’s Hong Kong listing (9988 HK), proposed Hong Kong listings from NetEase/Baidu/Trip.com (formerly C-Trip.com), and companies with a dual share class such as Xiaomi and Meituan Dianping. As the article notes, Alibaba HK, Xiaomi and Meituan Diangping are three of the top five most traded stocks in Hong Kong and yet are not included in the Hang Seng Index. The index provider is also talking about limiting financial companies’ weight in the index. I would assume that Hang Seng will approve of these companies going into the index based on the CEO’s comments.

Inclusion also means that, in addition to massive passive inflows, Alibaba HK may become available on Southbound Connect, meaning that Mainland investors would be able to trade the stock. It is estimated that nearly $1B has gone into Meituan Dianping since the stock was added to Southbound Connect. I have to tip my hat to our founder Jonathan Krane for his vision, which my colleagues and I have helped make investable. To see the Hang Seng pivot to what we’ve been doing for nearly seven years is a great compliment.

Two days ago, China Health Group (8225 HK) was a micro-cap stock no one had ever heard of myself included. However, overnight the company followed its Thursday +300% return with a return of -8% overnight. The company filed with the HK Exchange that the company’s HIV drugs can be used in treating coronavirus. Time will tell!

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

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

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