Key News

An institutional broker aptly described Asian equities as a bloodbath as Saudi Arabia’s oil output increase wreaked havoc overnight. Taiwan and Mainland China were the region’s best performers, losing 3% which shows the extent of the carnage. The one-two punch of covid 19 and an oil price war sent investors into “de-risking” mode.

There are lessons to be learned from China’s experience with covid-19 that are relevant here. The most critical to me is that the demographic most at risk are elderly with pre-existing health conditions. Such individuals may need to self-quarantine themselves as a China style quarantine is not feasible. Business travel will be curtailed while many of us will be working from home as a precaution. What occurred in China is unlikely to be replicated here due to our strong healthcare sector, lower smoking rate and lower pollution levels.

According to John Hopkins’ covid-19 website, China cases are falling dramatically even in Hubei province with just 36 new cases in the province. Unfortunately, covid-19 is now a global problem.

According to high frequency economic data from our partners at CICC, coal consumption rose to 69.5% of the level it should be at today while migrant labor workers have returned to their cities. Freight logistics capacity utilization rose to 82% of its pre-Chinese New Year’s level while property sales continue to rise off of a low base. Transportation indices are still weak while commodity prices remain soft. In an effort to support growth, private companies will have their payroll taxes halved through June.

Export/Import Data

January & February Data Year over Year in US $

Exports	-17.2% versus estimate -16.2%
Imports	-4% versus estimate -16.1%
Trade Balance	-$7B versus estimate $38.8B

January & February Data Year over Year in CNY

Exports	-15.9% versus estimate -13.7%
Imports	-2.4% versus estimate -12%
Trade Balance	-42.5B versus estimate 229B

Takeaway: This data was released on Saturday so it was quickly overshadowed by Saudi oil output news. The data was expected to be poor, which was the case though it beat my expectations based on the February PMI declines. Imports from the US increased 2.5% YoY along with increases from Australia and Russia, suggesting that China was an active buyer of commodities.

H-Share Update

The Hang Seng plunged -4.23% as volume surged 41% from Friday at 2X the 1-year average. Breadth laid a goose egg with all 50 stocks declining led lower by index heavyweights AIA Group -6.11%/-145 index points, Tencent -4.65%/-139 index points and HSBC -3.75%/-82 index points. Energy giants CNOOC and PetroChina were the worst performers off -17.2%/-81 index points and -9.63%/-16 index points. Sino Biopharma was off -6.33%/-15 index points following an earnings miss. Link REIT was off -0.07%/-0.3 index points. Hong Kong domiciled companies outperformed China-domiciled companies -3.65% versus -4.52% using the HS HK 35 and HS China Enterprises Indexes as proxies.  The Chinese companies listed in Hong Kong within the MSCI China All Shares Index were off -4.78% led lower by tech -6.43%, real estate -5.81%, discretionary -5.42%, health care -5.38%, materials -5%, industrials -4.63%, communication -4.34%, utilities -4.02%, financials -3.66% and staples -3.06%. Southbound Connect volumes were very high with Mainland Chinese investors strong buyers of Hong Kong stocks. Volume leader China Construction Bank had nearly 40 to 1 buyers, Tencent not quite 2 to 1 buying and ICBC 55 to 1 buyers. Like CCB, ICBC’s Hong Kong stock yields 5.51% versus a P/E of 5.36. At some point, foreign investors will discover these high yields versus bond yields. Mainland investors bought $1 billion worth of Hong Kong stocks today which is 2X the average we’ve seen. With Hong Kong’s volume skyrocketing, the jump in buying only accounted for 8.6% of turnover.

A-Share Update

The Shanghai and Shenzhen were off -3.01% and -3.79% as volume increased +13% from Friday and nearly 2X the 1-year average. Breadth was awful with only 693 advancing stocks and 3,059 declining stocks as large caps “outperformed” mid and small caps by ~1%. Foreign investors punched out of Mainland-listed stocks to the tune of $2.06 billion. The Mainland stocks within the MSCI China All Shares Index -3.64% led lower by tech -6.11%, discretionary -4.68%, communication -4.3%, materials -4.26%, industrials -3.55%, financials -3.05%, staples -2.97%, real estate -2.86%, health care -2.61%, energy -1.64% and utilities -1.32%. Northbound Connect volumes were elevated as foreign investors were sellers of Mainland stocks. Selling was more pronounced in Shanghai than in Shenzhen. Foreign investors sold $2.061 billion of Mainland stocks today while Northbound Connect accounted for 4.5% of Mainland turnover.

February FX Reserves $3.106 trillion versus estimate $3.109 trillion and January’s $3.115 trillion

Last Night’s Prices & Yields

• 1-Day Government Bond Yield 1.19% versus 1.16% on Friday
• 10-Year Government Bond Yield 2.52% versus 2.62% on Friday
• 10-Year China Development Bank Bond Yield 3.03% versus 3.13% on Friday
• CNY/USD 6.95 versus 6.93 on Friday
• CNY/EUR 7.94 versus 7.84 on Friday
• Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper off -2.66%