Key News 

Asian markets were mixed last night as Hong Kong, India, Korea, Taiwan, Singapore, the Philippines, Indonesia, and New Zealand saw equity market gains while Mainland China, Japan, Malaysia, and Thailand were down. Hong Kong, Shenzhen, and Shanghai all opened lower last night following minor declines on Wall Street on Tuesday, but only Hong Kong was able to finish the day higher among China markets.

The Wall Street Journal published an article saying that coal consumption in China is down 40% since before Lunar New Year. The decline in coal consumption certainly signals a construction slowdown, but not necessarily a deep slowdown in industrial production. Evaluating the impact of coronavirus on China’s economy is difficult right now. Most businesses and factories are reopening this week. We should get a better picture over the next two weeks as losses are tabulated and February economic data is released. We will be reporting on M2 and loan growth releases tomorrow when they are released. PMIs for February are due to be released on the 28^th and you can expect our commentary on those as well.

Trade officials in China have begun to accept applications for tariff waivers on 696 American products including soybeans, pork, beef, corn, wheat, crude oil, and natural gas. This is a great sign of good faith in trying to meet phase one trade deal commitments even in the face of the coronavirus.

A group of around 200 shops in Hong Kong went on strike last night in order to push for rent reductions. It seems that Hong Kong protests have turned their focus inward. As we have repeatedly stressed, internal structural issues have always been partly to blame for unrest in the city.

The Ministry of Transportation has waived tolls on roads across China, sending toll road names on a downward trend. The policy is likely meant to encourage the delivery of much-needed supplies across the country and should help with recovery efforts. Nonetheless, the policy will have a negative impact on local government finances. Local governments have become significant issuers in both the onshore and offshore bond markets. But, we can expect affected local governments to be included in emergency stimulus.

H-Share Update 

The Hang Seng ended the session up by +0.5%. According to CICC brokers, the market was anticipating mutual fund inflows as China takes further measures to insulate its economy from the effect of the coronavirus. Southbound investors bought a net HKD 304 million worth of Hong Kong stocks last night. Airlines surged as China announced measures such as direct cash infusions and mergers to help shore up losses in the airline industry in the face of coronavirus. HSBC remains under pressure from the announcement of its ambitious restructuring plan and pivot back to Asia. Consumer discretionary, information technology, and communication services led gains, while financials, health care, and energy underperformed. The Hong Kong stocks within the MSCI China All Shares Index gained +0.09%.

A-Share Update

Shanghai and Shenzhen fell by -0.3% and -0.6%, respectively, mirroring declines on Wall Street. Despite edging higher DoD at midday, the market saw profit-taking pressures that sent the indexes downward to finish slightly off. Northbound investors bought a net RMB 3.8 billion of Mainland stocks last night, while turnover fell by 11% DoD. Consumer discretionary, financials, and real estate were outperformers last night. Meanwhile, communication services, health care, and technology underperformed. Despite broad market losses, the Mainland stocks within the MSCI China All Shares Index gained +0.23%

Last Night’s Prices & Yields

• Yield on 1-Day Government Bond 1.31 versus 1.31 yesterday
• Yield on 10-Year Government Bond 2.88 versus 2.87 yesterday
• Yield on 10-Year China Development Bank Bond 3.29 versus 3.27 yesterday
• CNY/USD 6.99 versus 7.00 yesterday
• CNY/EUR 7.55 versus 7.57 yesterday
• CNY/GBP 9.06 versus 9.11 yesterday