If It Bleeds It Leads
Asian equities followed the US, plunging nearly 4% in every market with tech stocks hit hard. It is worth noting that today is MSCI’s trade balance date, so volumes are high to begin with (watch Luckin Coffee (LK US) at today’s close as its weight increases in MSCI indices).
A friend who spent his career in the media/news business told me yesterday that media lives by the motto “if it bleeds it leads”. As we discussed at length yesterday in our webinar (view here), there are unknowns that make coronavirus worrisome, such as longer incubation period and the lack of a vaccine. The reality is coronavirus should be a scary for a very specific demographic: the elderly with pre-existing health conditions. The Journal of American Medical Association released an article based on a study by the Chinese Center for Disease Control and Prevention, using data as of February 11th. This report was reported by MarketWatch.com. Key points that occurred in China:
- Less than 10% of China cases were under the age of 29.
- Only 5% of coronavirus cases reached critical stage.
- 2.3% total cases led to death; 50% of critical cases resulted in death
- 22.8% of deaths were over the age of 70; unfortunately, the data grouped ages in only three brackets.
- Chinese men are almost 2X as likely to die than women. Why? Likely because 50% of Chinese men smoke versus only 2% of women according to the Marketwatch.com
Human Toll: Total confirmed cases are at 83,774 though 36,654 of those cases have recovered. Within the 78,824 cases that have occurred in China 65,914 are in Hubei province. There were 24 new coronavirus cases outside of Hubei province. 5,000 people have coronavirus outside of China. Not a typo. 5,000.
High Frequency Economic Data: Commodity prices in China fell though those prices are related to global commodity prices. Less commodity prices, all of the data we track such as migrant labor, freight logistics, property sales and coal consumption are rising. Transportation indicators are still low.
As we discussed yesterday, tourist related industries are apt to suffer as global travel will likely be restricted. Should we be flying to Milan or Seoul? Of course not!
Baidu (BIDU US) reported Q4 earnings after the US market’s close yesterday.
- Revenue increased 6% YoY to RMB 28.9 billion ($4.15B)
- Operating Income +16% to RMB 4.7B ($669mm) as Selling/General & Admin expenses decreased 33%
- Adjusted EPS increased +98% YoY to 26.54 ($3.81) versus estimate 25.52
- Q1 Revenue forecast RMB 21B ($3B) to 22.9B ($3.3b) versus estimate RMB 23.42B
Baidu spin off and online entertainment company iQIYI (IQ US) reported Q4 earnings after the US market’s close yesterday.
- Revenue +7% YoY RMB 7.5B ($1.1B) versus estimate 7.09B
- Q4 total subscribers 106.9mm of which 98.9% are paying subscribers
- Operating Loss RMB 2.5B ($358mm) versus a loss YoY of RMB 3.5B
- Adjusted EPS RMB -3.43 ($0.49)
- Q1 Revenue forecast RMB 7.1B to 7.52B versus estimate 7.04B
The Hang Seng Index plunged -3.55%/-648 index points to close at 26,129 as volumes surged 52% though MSCI’s rebalance was likely a factor in the volume spike. Breadth laid a goose egg with no advancers and 49 decliners. Index heavy weights led the decline, with Tencent -3.31%/-101.7 index points, HSBC -2.3%/-55.1 index points and China Construction Bank -2.17%. China Resources Land (1109 HK) was the “best” performer closing flat. Apple supplier ACC Technology (2018 HK) was the worst performer -6.59%/-6.7 index points with HK real estate firm Wharf Real Estate -6.23%/-8.1 index points on going private news. HK stocks slightly outperformed Chinese stocks in HK -2.03% versus -2.74% using the HS China Enterprises and HS HK 35 as proxies. The broad Hang Seng Composite Index had only 19 advancers and 450 decliners. The Chinese companies listed in HK within the MSCI China All Shares index declined -2.98% led lower by staples -2.23%, health care -2.35%, real estate -2.38%, financials -2.41%, utilities -2.41%, materials -2.73%, industrials -3.14%, communication -3.27%, energy -3.68%, discretionary -4.24% and tech -4.77%. Southbound Connect volumes were elevated with mainland investors buyers of HK listed stocks. China Construction Bank (P/E 5.4, Dividend Yield 5.51%) had ten to 1 buyers, Tencent 3 to 2 buyers and Semiconductor Manufacturing 5 to 3 buyers. Mainland investors bought $474mm of HK stocks while Southbound Connect accounted for not quite 7% of HK turnover.
The Shanghai & Shenzhen plunged -3.71% and -4.93% as volume increased 7.8% day over day. Breadth was atrocious only 224 advancers and 3,550 decliners. Mega and large caps only fell -3% while mid and small caps were off between 4% and nearly 6%. The mainland stocks within the MSCI China All Shares were off -3.35% led lower by real estate -0.62%, utilities -1.29%, health care -2.61%, energy -2.72%, industrials -3.08%, staples -3.14%, financials -3.39%, discretionary -3.64%, materials -3.65%, communication -3.81% and tech -5.04%. Northbound Connect flows were high as foreign investors sold $735mm of mainland stocks. Shenzhen Connect volumes were much higher than Shanghai, though selling was more pronounced on Shanghai as Kweichow Moutai was sold 3 to 1. Northbound Connect accounted for 5% of mainland turnover. For the week foreign investors sold $4.18 billion of mainland stocks this week.
Last Night’s Prices & Yields
- USD/CNY 6.9885 versus 7.0059
- CNY/EUR 7.6691 versus 7.7034
- Yield on 1-Day Government Bond 1.35% versus 1.76% yesterday
- Yield on 10-Year Government Bond 2.77% versus 2.80% yesterday
- Yield on 10-Year China Development Bank Bond 3.23% versus 3.24% yesterday
- Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper were off -0.31%