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Stay Calm & Watch The Media Hype: The Facts About Coronavirus Victims

Key News

Asian equities were largely down today except for Mainland China. I was somewhat surprised South Korea didn’t have a strong day after Korean-made “Parasite” took home several rewards, including best picture, at the Oscars last night. The PBOC released CNY 300 billion ($42b) in special re-lending funds to help businesses cope with the economic fallout spurred by the coronavirus. One Mainland broker noted that China coronavirus cases outside of Hubei province fell, providing a glimmer hope that the epidemic might be losing steam. Nonetheless, cases within Hubei providence did increase. However, that is also to be expected along with improvements in the ability to diagnose the virus. There remain shortages of both hospital beds and testing equipment. Our favorite healthcare analyst noted that the worst might be over while another firm’s modeling shows a peak within a week. Today was the official first day back to work In China. However, many workers are expected to work from home. Hong Kong discretionary stocks were the big losers today as automakers and Meituan Dianping were off -5.99%.

According to John Hopkin’s coronavirus blog/map, there have been 40,573 confirmed cases with 40,195 taking place in China of which 29,631 are in Hubei province. Coronavirus has tragically claimed 910 lives, 871 of which have been within Hubei province. Coronavirus is less deadly than SARS or MERS as these viruses turn the immune system against itself in a terrifying process called cytokine. But, I don’t want to get out over my skis as I have no medical training. A teacher at one of my kids’ schools mentioned that the children he teaches are frightened. Fortunately, the coronavirus has a more severe impact on the elderly with weakening immune systems. I believe China’s high rate of smoking is more attributable to the older generation as well, which also places them at risk. I saw an excellent Quartz article noting that 39 out of 41 victims were over the age of 50. Bloomberg also reported on the age of victims. This is a very tragic situation that is exacerbated by media hype.

Remember after the US close Wednesday we have MSCI’s Quarterly Index Review pro forma released. My prediction: more China! Why? China’s equity market has grown larger due to a strong rally in 2019.

January Inflation Data

PPI 0.1% versus estimate 0% and December’s 0.5%
CPI 5.4% versus estimate 4.9% and December’s 4.5%

Takeaway: Today’s release was largely ignored as Lunar New Year (LNY) tends to distort data at this time of year. Nonetheless, the jump in inflation was higher than anticipated. CPI was driven by a surge in the price of pork, which was also driven by the meat’s popularity at the LNY dinner table. Food prices rose 20% year over year driven by pork’s 116% rise. However, this is largely believed to be their peak.

H-Share Update

The Hang Seng opened lower -1.14% to an intraday low of -1.31% though managed to rebound to close off -0.59%/-162 index points at 27,241. Volume picked up 8% from Friday and well above the 1-year average. Breadth was poor with only 12 advancers 37 decliners led lower by AIA -1.31%/-34.6 index points, Tencent -0.45%/-14.2 index points though HSBC +0.52%/+13.6 index points. Diaper maker Hengan International Group was the day’s best performer +4.89% while clothing maker Shenzhou International Group -4.15%/-10.7 index points. Chinese companies outperformed Hong Kong companies -0.47% to -0.77% using the HS China Enterprise and HS HK 35 Indexes as proxies. The Chinese companies listed in Hong Kong within the MSCI China All Shares Index were off -0.32% on average as materials gained +2.13%, healthcare +1.51%, real estate +0.68% and industrials +0.53%. Consumer discretionary was off -2.12%, financials -0.75%, tech -0.55%, communication -0.51%, energy -0.42%, staples -0.13% and utilities -0.09%. Southbound Connect volume was high as Mainland investors bought the dip. Volume leader Tencent saw 5 to 1 buyers to sellers, China Construction Bank 10 to 1 and Meituan Dianping 2.5 to 1. Mainland investors bought $646 million of Hong Kong stocks while Southbound Connect volume accounted for just over 10% of Hong Kong turnover.

A-Share Update

The Shanghai & Shenzhen swung from losses to gains to losses before pulling out an afternoon rally to gain +0.51% and +1.31%, respectively, by the close. Volumes were off -4% from Friday but still well above the 1-year average. Breadth was strong with 2,860 advancers and 846 decliners as small and mid-caps outperformed large caps. The Mainland stocks within the MSCI China All Shares Index gained +0.60% led higher by materials +3.17%, real estate +2.62%, industrials +1.54%, discretionary +1.52%, energy +1.1% and staples +0.76%. communication was off -0.63%, utilities -0.52%, healthcare -0.5%, tech -0.48% and financials -0.06%. Northbound Connect volumes were elevated as foreign investors were net sellers of Mainland stocks. Foreign investors sold $468 million worth of Mainland stocks while Southbound Connect volume accounted for just over 4% of Mainland turnover.

Last Night’s Prices & Yields

  • CNY/USD 6.98 versus 7.00 on Friday
  • CNY/EUR 7.63 versus 7.67 on Friday
  • CNY/GBP 9.04 versus 9.06 on Friday
  • Yield on 1-Day Government Bond 1.44% versus 1.44% on Friday
  • Yield on 10-Year Government Bond 2.79% versus 2.80% on Friday              
  • Yield on 10-Year China Development Bank Bond 3.21% versus 3.24%
  • Commodities were largely lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.52%