Asia Responds To Powell
Asian equity markets were mixed following the US Fed cut. While Japan, Hong Kong, and India were down on the day, the remainder of Asia including Mainland China was up. The Fed rate cut, Biden’s Super Tuesday win, and an improving coronavirus situation in China helped sentiment. Hong Kong followed the Fed by cutting interest rates in order to maintain its peg to the US dollar. Banks slumped on the news, which, due to their weight in the indices, dragged Hong Kong benchmarks south. Banks make up 50% of the Hang Seng Index. Excluding banks, indices would have done significantly better. Real estate companies rallied on the news in both Hong Kong and Mainland China. CNY had a big move versus the dollar as President Trump is finally getting the weaker dollar he has been asking for.
The PBOC is expected to cut interest rates according to Mainland media chatter. The market shrugged off the February Caixin China PMI Services release, which was as awful, coming in at 26.5 versus an estimated 48 and January’s 51.8. Markets are looking forward not backward as China is returning to work in a significant fashion while coronavirus cases continue to drop in China. A global broker noted that Asia EM equities saw their largest outflows since 2011. Meanwhile, several institutional trading desks noted that their “pads”, or order lists, were net selling as sensational/apocalyptic headlines continue to drive global de-risking.
Vipshop (VIPS US) will report Q4 2019 earnings tomorrow before the US market open.
This Friday is FTSE’s rebalance, which will include raising the inclusion factor of China A-shares from 15% to 25% within their Emerging Markets index. The impact should be muted as the largest EM ETF globally is benchmarked to a custom EM index.
The Shenzhen local government announced new subsidies for the biomedical industry. They plan to offer subsidies for 40% of the R&D expenditure for type 1 and type 2 drugs. The new subsidies cover drugs, genetic tests, medical devices, and traditional Chinese medicine research.
According to the John Hopkins coronavirus map, there have been 94,250 cases globally though 51,026 people have recovered worldwide. Of the 94k cases, 80,270 have been in China, of which 67,332 have been residents of Hubei province. It is worth noting that 25,904 people in Hubei Province have fully recovered. Of the 3,214 fatalities so far worldwide, 2,871 were within Hubei province. According to CICC, Hubei saw 115 new cases last night compared to yesterday’s 114. Meanwhile, 11 new cases popped up in China ex-Hubei. The number of cases in India increased overnight as well. I recently read a very good book called Shantaram that takes place in Mumbai. Coronavirus in a city such as Mumbai would be very bad. Let’s hope Indian authorities can contain it quickly.
Economic recovery is well underway in China. According to high-frequency economic data from CICC, coal consumption is now at almost 63% of typical post-Lunar New Year levels, migrant labor is at 92%, and back to work and freight logistics metrics are both at 75%. Meanwhile, commodity prices and transportation data remain weak. Nonetheless, I think March data could be better than foreign investors realize.
The Hang Seng swung from losses to gains ending on a loss of -0.24%/-62.7 index points as volume fell nearly 5% since yesterday. Breadth was positive with 26 advancers and 20 decliners led by HSBC -2.28%/-52.9 index points, AIA -0.6%/-14.9 index points and today’s best performer Link REIT +3.14%/+14.7 index points. Hang Seng Bank was the worst performer -3.99%/-13.7 index points.
China-domiciled companies outperformed Hong Kong-domiciled companies +0.35% and -0.36%, respectively, using the HS China Enterprise and HS HK 35 Indices as proxies. The Chinese companies listed in Hong Kong within the MSCI China All Shares Index +0.36% led higher by real estate +2.89%, staples +1.78%, utilities +1.23%, discretionary +0.52%, industrials +0.24%, communication +0.22%, health care +0.22% and materials +0.21%. Energy was the worst performer -1.2%, tech -0.13% and financials -0.13%. Southbound Connect volumes were off the recent high volumes though Mainland investors continued to buy Hong Kong stocks. Volume leader CCB had 4 to 1 buyers, real estate firm Sunac saw buyers barely outpace sellers and Tencent had 2 to 1 sellers to buyers. Mainland investors bought $144mm of Hong Kong stocks while Southbound Connect turnover accounted for 7.6% of Hong Kong’s total turnover.
Shanghai & Shenzhen had a choppy day though a late-day rally pulled both indices into positive territory ending +0.63% and +0.36%, respectively. Volume fell by -15% since yesterday accompanied by positive breadth with 2,497 advancers and 1,136 decliners. Mega/large caps outperformed mid and small caps today, declines in which were led by tech stocks. The Mainland stocks within the MSCI China All Shares Index gained +1.17% led by real estate +4.5%, staples +2.35%, financials +1.89%, materials +1.72%, industrials +1.35%, discretionary +0.95%, utilities +0.9%, energy +0.86%, communication +0.53%, and health care +0.48%. Meanwhile, tech was off by -1.67%. Northbound Connect volumes were elevated in mixed trading as Shenzhen Connect experienced selling pressure while Shanghai saw net buying. Foreign investors sold -$112mm worth of Mainland stocks today. This week, foreign investors have bought a total of $552mm worth of Mainland stocks.
Last Night’s Prices & Yields
- CNY/USD 6.92 versus 6.97 yesterday
- CNY/EUR 7.70 versus 7.79 yesterday
- Yield on 1-Day Government Bond 1.17% versus 1.25% yesterday
- Yield on 10-Year Government Bond 2.67% versus 2.75% yesterday
- Yield on 10-Year China Development Bank Bond 3.16% versus 3.21% yesterday
- Commodities were off on the Shanghai & Dalian Exchanges with Dr. Copper were off -0.81%