Daily Posts

Healthcare Leads Hong Kong and Mainland Markets Higher

Key News

Asian equity markets were sea of green with every market up. The market is anticipating a short-lived economic fallout from coronavirus. The rate of new patients continues to decline, which is leading many to believe that the epidemic will likely peak over the next two weeks. The Chinese government’s response, appropriately described as “draconian” by one broker, has nonetheless helped limit the impact. News that the National Health Commission found several antiviral drugs to be effective at inhibiting the novel coronavirus also boosted markets. Thus, it is no surprise that Mainland and Hong Kong healthcare stocks were the day’s best performers.

While the Mainland market is continuing its broad rebound, Hong Kong’s rebound is producing both winners and losers. I suspect the same will occur on the Mainland over the course of the next few days. The market is taking a fairly optimistic view, which only time will confirm.

According to John Hopkins’ coronavirus map, there are now 24,607 cases, 24,391 in China, of which 16,678 are in Hubei providence. 479 of 494 deaths have occurred in Hubei providence. Our thoughts and prayers are with the families of all those effected by the epidemic.

I am increasingly a believer that the market will increasingly focus on winners (online gaming, food delivery, online education) and losers (tourism: airlines, hotels, restaurants). Another issue is the effect on Hong Kong, which had been suffering under the weight of protests. Hong Kong needs a positive catalyst, but I can’t think of one.

H-Share Update

The Hang Seng had a choppy session swinging from an intra-day high of +0.94% to a loss of -0.13% to close +0.42%/+110 index points at 26,786. Breadth was mixed with 32 advancers and 15 decliners as volume was slightly off day-over-day though was well above the 1-year average. Index heavyweight China Construction Bank gained +1.15%/+23.1 index points, CSPC Pharmaceutical was the day’s best performer +4.47%/+12.1 index points and mega bank ICBC +0.95%/+11.2 index points. It was interesting to see energy giant CNOOC gain +1.69%/+10.9 index points. Apple supplier Sunny Optical was the day’s worst performer -2.67%/-7.5 index points with goods maker Want Want China Holdings -2.34%/2.4 index points. China and Hong Kong domiciled companies traded in-line with the HS China Enterprises Index +0.56% and the HS HK 35 Index +0.43%. The Chinese companies listed in Hong Kong within the MSCI China All Shares Index gained +0.53% led higher by healthcare, discretionary +1.35%, industrials +1.26%, tech +1.04%, energy +0.97%, materials +0.8%, financials +0.75% and staples +0.41%. Utilities were off -0.28%, communication -0.07% and real estate -0.01%. Southbound Connect volumes were still elevated with buyers outpacing sellers 2 to 1. Volume leader CCB had nearly 15 to 1 buying, Tencent 3 to 1 buying and Semiconductor Manufacturing saw buyers slightly outpacing sellers. Mainland investors bought $877mm worth of Hong Kong stocks today in the strongest buying day since Feb 6, 2018, according to Bloomberg. Southbound Connect trading accounted for just over 9% of Hong Kong turnover.

A-Share Update

The Shanghai & Shenzhen +1.25% and +2.48% as turnover dipped slightly day over day but was still well above the 1-year average. Breadth was amazingly strong with 3,369 advancers and 350 decliners. Mid and small caps outperformed large caps by a full percentage point. The Mainland stocks within the MSCI China All Shares Index gained +1.72% led higher by healthcare +3.95%, industrials +2.77%, discretionary +2.37%, materials 2.01%, staples +1.73%, tech +1.56%, communication +1.55%, utilities +0.89%, energy +0.79%, real estate +0.71% and financials +0.55%. Northbound Connect volumes were very high in mixed trading as Shenzhen’s volume outpaced Shanghai’s. There was a slight outflow of $44mm out of Mainland stocks though there were still buyers active in the market. I suspect new buyers were active while some investors sold previously held positions. Foreign trading accounted for just over 5% of Mainland turnover.

January Caixin China PMI Services 51.8 versus estimate 52 and December’s 52.5

Takeaway: The underwhelming release was largely ignored by market participants. The Caixin survey, conducted by IHS Markit, focuses on smaller private companies. The survey tends to be volatile due to the small number of companies surveyed. Regardless, the data does show that the efforts to support private/non SOEs need to continue even in a post trade war world.

Last Night’s Prices & Yields

Yuan strengthened somewhat while risk-free yields were basically flat.

  • Yield on 1-Day Government Bond 1.50% versus 1.50% yesterday
  • Yield on 10-Year Government Bond 2.84% versus 2.86% yesterday
  • Yield on 10-Year China Development Bank Bond 3.27% versus 3.26% yesterday
  • CNY/USD 6.97 versus 7.00 yesterday
  • CNY/EUR 7.67 versus 7.73 yesterday
  • Commodities continue to rebound on the Shanghai & Dalian Exchanges with Dr. Copper +0.75%