Key News

Asian equity markets followed the US’ lead higher though Singapore, Malaysia and Indonesia were off. Hong Kong and Mainland China were standouts from a performance perspective as investors cheered the Fed rate cut and Joe Biden’s Super Tuesday wins. We didn’t get a PBOC interest rate cut overnight as I had thought though we did receive policy support for health care, infrastructure and 5G. High frequency data shows that China continues to return to work in a significant way. The media’s constant barrage on supply chain disruption is completely backward and ignorant of the reality of this return.

COVID-19 Update

My thoughts on COVID-19. There is much we can learn about COVID-19 from its effect on China.

• COVID-19 affects a very specific demographic the most: the elderly and those with pre-existing health conditions.
• Fatality rates in China were higher than here in the US due to our health care industry. EM countries lack the depth of resources versus developed market countries. This explains the fatality disparity between China and Iran versus South Korea, Japan, and the US.
• China-style quarantine measures are not feasible in the US or Europe for both legal and cultural reasons. However, companies will allow more people to work at home and cancel business travel.
• In China, tourism and travel-related industries have done very poorly. The same will likely occur here. Hotels, airlines, casinos, movie theater chains, and restaurants may want to be avoided.
• In China, stay at home beneficiaries were online gaming, e-commerce, online education, online content providers and healthcare stocks.

According to John Hopkins COVID-19 blog, there have been 96,717 cases though 53,610 cases recovered. Of the 96k cases, 80,411 took place in China of which 67,466 took place in Hubei province. There were 134 new cases in Hubei province though just 4 cases in China less Hubei province. There have been 3,303 deaths of which 2,902 took place in Hubei province.

According to high-frequency economic data from our partners at CICC, coal consumption was flat day over day at 65% of where we should be at this stage Lunar New Year. 95% of migrant labor workers have returned home meaning they can go back to work. Freight logistics utilization continues to rise and is currently at 76% of the historic seasonal level. Property sales are rising though off a very low base. Commodity prices have been weak though their prices are set globally. Transportation continues to be an area of weakness.

H-Share Update

The Hang Seng opened higher and traveled from the lower left to the upper right gaining +2.08%/+545 index points to close at 26,767. The index may have found support just above the 26,000 level, which is where it bottomed at the end of January. However, the index remains well off its all-time high. Breadth was very strong with 49 advancers and only 1 decliner as volume surged 19.5% day over day. Index heavyweights led the way higher with Tencent +3.1%/+100.2 index points, AIA Group +3.46%/+89.8 index points and China Construction Bank +1.87%/+40 index points.

Apple supplier AAC Tech was the day’s best performer +5.04%/+5.3 index points though Sino Biopharma was +4.75%/+12.2 index points. The day’s only negative performer was China petroleum -0.25%/-0.7 index points. China and Hong Kong stocks performed well today +1.96% and +1.87% 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 gained +2.09% led higher by staples +3.89%, discretionary +3.28%, communication +2.74%, heath care +2.25%, financials +1.99%, tech +1.73%, utilities +1.51%, industrials +1.26%, energy +1.19%, real estate +0.62% and materials +0.11%.

Southbound Connect volumes were elevated, which is the new normal as Mainland investors continue to buy Hong Kong stocks. Volume leaders CCB, Tencent, and Maituan Dianping saw buyers outpace sellers by 10 to 1, 2 to 1, and 5 to 1, respectively. Mainland investors bought $801mm worth of Hong Kong stocks while Southbound Connect turnover accounted for 8.4% of Hong Kong’s turnover.

A-Share Update

Shanghai & Shenzhen gained +1.99% and +1.78%, respectively, as volume picked up +18% day over day accompanied by strong breadth of 30,40 and 658 decliners. Large caps outperformed mid and small caps by a small margin. The Mainland stocks within the MSCI China All Shares Index gained +1.98% led by staples +4.31%, financials +2.73%, discretionary +2.16%, health care +2.12%, energy +1.76%, communication +1.75%, materials +1.29%, utilities +1.1%, industrials +1.03%, real estate +0.63% and tech +0.22%. Northbound Connect volumes were elevated with foreign investors back buying Mainland stocks. Volume leaders were MSCI inclusion stocks Kweichow Moutai and Ping An Insurance, which both saw buyers outpace sellers. Foreign investors bought $693mm of mainland stocks today while Northbound Connect volumes accounted for just over 4% of mainland turnover.

Vipshop (VIPS US) reported Q4 financial results before the US market open today. The company exceeded expectations in Q4 but issued a cautious Q1 outlook.

Last Night’s Prices & Yields

• CNY/USD 6.94 versus 6.92 yesterday
• CNY/EUR 7.76 versus 7.70 yesterday
• Yield on 1-Day Government Bond 1.16% versus 1.17% yesterday
• Yield on 10-Year Government Bond 2.68% versus 2.67% yesterday              
• Yield on 10-Year China Development Bank Bond 3.17% versus 3.16% yesterday
• Commodities were up on the Shanghai & Dalian Exchanges with Dr. Copper were off +0.15%