Key News

Asian equity markets ended the week with a thud following declines on Wall Street on Thursday as most indexes were off between -2% to -3%. Media headlines are focused on the number of COVID-19 cases exceeding 100k though 55k of those have recovered. The CDC estimates 13mm Americans have had the flu with a 0.07% fatality rate. Mainland China held up well in comparison as COVID-19 cases have plateaued in the country while investors cheer fiscal and monetary support.

How do you think China’s equity performed this week? Most investors would be surprised to learn that Shanghai and Shenzhen were up this week +5.35% and +6.29%, respectively. Foreign investors bought $806mm worth of Mainland stocks this week as Mainland China has almost exceeded pre-COVID-19 highs in early January. The Hang Seng was flat for the week and sits at the support level just above 26,000. Cat Stevens once sang “miles from nowhere, think I’ll take my time” as the Hang Seng is miles from its early January high.

COVID-19 Update

Having more doctors on television would greatly help ease the public’s fears. The most recent death in California was a 71-year-old with underlying health conditions. The latest death in Australia was a 95-year-old who contracted the virus at a nursing home. The two cases here in NYC involved people who had “substantial pre-existing conditions”. Taking what happened in Hubei province and extrapolating to what will happen here is illogical. Air pollution in Hubei was likely a factor. Additionally, China’s high smoking rate cannot have helped. Healthcare expenditures per person in China are $400 versus nearly $11,000 here in the US. We are blessed with world-class healthcare. This message should be delivered!

According to John Hopkins’ COVID-19 blog, there have been 100,052 cases though 55,671 have recovered. Of the 100k cases, 80,556 of the cases have occurred in China of which 67,592 occurred in Hubei province. Of the 3,398 fatalities, 2,931 occurred in Hubei province. According to CICC, there were 126 new cases in Hubei yesterday and only 5 cases in China outside of Hubei. There is talk that the WHO might call out countries that haven’t done their part to restrict travel. My guess is that European countries will receive the most criticism.

According to high-frequency economic data from our partners at CICC, coal consumption is up to 68% of normal post-Lunar New Year levels and 99% of migrant workers have returned to the cities in which they work. Freight logistics capacity utilization rose to 79% of normal post-Lunar New Year levels. Meanwhile, property sales continue to rise. Transportation data has been light in addition to commodity prices.

H-Share Update

The Hang Seng slumped -2.32%/-621 index points to close at 26,146 as volumes dipped -2% from yesterday. Breadth laid a goose egg with no advancers and 49 decliners led by tool manufacturer Tencent -2.56%/-80.8 index points, China Construction Bank -2.76%-57.3 index points and AIA -2.06%/-52.3 index points. For the week, the Hang Seng was +0.06%. Techtronic was the day’s worst performer -7.41% while CSPC Pharma was the day’s best performer. Chinese companies underperformed Hong Kong companies, falling -2.53% and -2.1%, 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 declined -2.26% led lower by real estate -2.97%, energy -2.77%, industrials -2.71%, communication -2.62%, discretionary -2.52%, utilities -2.34%, financials -2.2%, materials -1.99%, staples -1.22%, tech -1.03% and healthcare -0.29%. Southbound Connect volumes were elevated, which appears to be the new normal. Mainland investors were buyers of Chinese companies listed in Hong Kong. Volume leader China Construction Bank (P/E 5.41 versus Dividend Yield 5.47%) saw 10 to 1 buyers and Tencent saw sellers outpace buyers by a small margin. Meanwhile, ICBC saw buyers outpace sellers by a very large margin. All told, Mainland investors bought $419mm worth of Hong Kong stocks and Southbound Connect accounted for 7% of HK turnover.

A-Share Update

The Shanghai & Shenzhen lost -1.21% and -0.74%, respectively, as volume slumped -18%. Breadth deteriorated with 1,494 advancers and 2,160 decliners. For the week, Shanghai and Shenzhen gained +5.3% and +6.2%, respectively (not a typo!). Small and mid-caps outperformed large and mega caps by a small margin. The Mainland stocks within the MSCI China All Shares Index fell -1.18% with healthcare managing a gain of +0.43% though real estate was off -2.61%, financials -2.01%, industrials -1.29%, staples -1.2%, utilities -1.06%, discretionary -1%, tech -0.92%, communication -0.86%, materials -0.56% and energy -0.56%. Northbound Connect was elevated, which appears to be the new normal. Foreign investors sold Mainland stocks though selling pressure was more pronounced on Shanghai then Shenzhen. MSCI inclusion stock Kweichow Moutai was sold 2 to 1, Jiangsu Hengrui Medicine was sold slightly, and Ping An Insurance was sold 3 to 1. Foreign investors sold $439mm worth of Mainland stocks today while foreign trading accounted for 4% of Mainland turnover. For the week, foreign investors bought $806mm worth of Mainland stocks.

Last Night’s Prices & Yields

• 1-Day Government Bond Yield 1.16% versus 1.16% yesterday
• 10-Year Government Bond Yield 2.68% versus 2.68% yesterday
• 10-Year China Development Bank Bond Yield 3.13% versus 3.18% yesterday
• CNY/USD 6.93 versus 6.94 yesterday
• CNY/EUR 7.84 versus 7.75 yesterday
• Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper were off -0.88%