Key News

Asian markets were broadly higher except for New Zealand. A-shares rebounded nicely after finally pricing in the coronavirus following a hiatus of over one week. Shanghai and Shenzhen were up +1.34% and +1.8%, respectively while the Hang Seng rose +1.21%. Those modest gains come even as many stocks hit their lower trading limits in yesterday’s selloff. While investors who had been fishing for steeper discounts to materialize in the A-share market may be disheartened, those who immediately bought the dip should rejoice.

Despite the market comeback, the coronavirus outbreak continues. So far, there have been 20,684 confirmed cases of the virus, 427 deaths, and 725 people have been cured. Our hearts and minds are with the people of Wuhan and greater Hubei province during this trying time. We hope for a swift recovery.

As a result of the virus and ensuing public health measures, residents of many regions of China have been stuck at home. Local governments have suspended public gatherings and, in many cases, required that residents only leave their homes in the case of an emergency, even using drones to ensure compliance with the requirement.

In desperate need of indoor entertainment, video streaming and online gaming have become the primary activities for young people throughout the Spring Festival (Lunar New Year). On January 25^th, Tencent’s Mobile game “Peace Elite” was logged onto so many times that several server blackouts occurred, only to be reversed 24 hours later. In 2019, revenue from Tencent’s “Peace Elite” game alone was estimated to have been over $776 million. This trend is likely affecting other key internet names as well, whose earnings for this quarter should see a boost. Data from JD.com indicates that staples and food transaction value nearly doubled this Lunar New Year compared to last year at this time. JD.com is able to deliver goods using drones, which has probably helped them meet demand despite a moratorium on outdoors activity.

On Monday, the PBOC announced the injection of liquidity into the financial system to the tune of nearly $21 billion mainly in the form of reverse repos. The central bank also directed banks to refrain from calling in loans to critical industries. The move was earmarked as an emergency measure, rather than a longer-term policy. However, PBOC guidance indicated that further stimulus was to come, which could potentially include a cut to the Loan Prime Rate.

The Markit/Caixin Services PMI for January is due tomorrow. The metric is expected to come in at 52.6, indicating an expansion. The number an improvement over December’s 52.1 and approximately in-line with the official metric, which is less focused on smaller private companies.

H-Share Update

The Hang Seng gained +1.21%/+319 index points to close at 26,675 as volume was off slightly from yesterday though well above the 1-year average. Breadth was very strong with 44 advancers and just 4 decliners as index heavyweights had a strong day with Tencent +3.42%/+107.2 index points, Ping An Insurance +2.05%/+31 index points and AIA Insurance +0.996%/+25.3 index points. CCB gained +1.16%/+23.1 index points. Apple supplier Sunny Opitical was the best performer +4.83%/+14 index points. Chinese companies outperformed Hong Kong domiciled companies +1.63% and +0.48% using the HS China Enterprises and HS HK 35 Indexes as proxies. The Hong Kong stocks within the MSCI China All Shares Index gained 2.25% led higher by tech +4.03%, staples +3.1%, communication +2.9%, real estate +2.82%, materials +2.71%, health care +2.62%, discretionary +2.23%, industrials +2.11%, financials +1.42%, energy +1.24% and utilities +0.03%. Southbound Connect volumes returned to earth after yesterday’s incredible volumes. Buyers outpaced sellers with volume leaders CCB seeing 8 to 1 buying, Tencent 2 to 1 and Meituan Dianping 11 to 1 buying.

The Macau government announced a 15-day closure of its casinos and non-emergency government services following the confirmation of the 10^th case of coronavirus in the city. This is likely to have a negative effect on earnings. Macau casinos Galaxy Entertainment and Sands China were off -2.26%/-7.6 index and -1.97%/-6.3 index points

A-Share Update

The Shanghai and Shenzhen rebounded today gaining +1.34% and +1.8% on very high volume +100% from yesterday. The Mainland stocks within the MSCI China All Shares Index gained +2.94% led higher by tech +4.9%, communication +4.03%, healthcare +3.8%, discretionary +2.92%, staples +2.92%, industrials +2.87%, materials +2.29%, real estate +2.24%, financials +2.14%, utilities +2.13%, and energy +0.65%.

Last Night’s Prices & Yields

• Yield on 1-Day Government Bond 1.50% versus 1.70% yesterday
• Yield on 10-Year Government Bond 2.86% versus 2.82%
• Yield on 10-Year China Development Bank Bond 3.26% versus 3.23%
• CNY/USD 6.99% versus 7.02
• CNY/EUR 7.73% versus 7.76