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Trump Address Doesn’t Calm Markets, China New Cases Drop To New Low

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Key News

Asian equity markets plunged as President Trump’s speech fell flat with investors. What was missing? The lack of fiscal stimulus, recognizing issues in test kits and limiting domestic travel stand out to me relative to responses in China, South Korea and Japan. However, a stronger response is likely being drawn up as we speak.

Mainland China held up relatively well as the market anticipates a bank reserve requirement ratio cut to be announced tomorrow. Tencent was off due to the NBA season being put on hold as they have exclusive rights to stream games. The only positive I can find was the strong buying of Hong Kong stocks by Mainland investors, the strongest ever.

We are suffering from a crisis of confidence as there are more questions than answers around COVID-19. Several markets were off by dramatic amounts including  Thailand -11%, India and Singapore -8%, Indonesia -5%, Japan -4%, HK and Korea off nearly 4%. Looking at 19 markets there were only 1,109 advancing stocks and 11,306 decliners. I doubt we have reached the low point so a strong policy response is needed.

The Craiglist of China (WUBA US) reported Q4 earnings after the US close yesterday. The company’s Q4 results were strong as revenue increased 15% year over year while net income increased over 500%. However, the company’s Q1 forecast was understandably quite light.

The world should take a note from China as we continue to deal with COVID-19. Despite more outbreaks elsewhere, data coming out of China continues to confirm that the country has successfully contained the virus. According to CICC, 20 provinces have reported 0 new cases for the past 10 days. The freight logistics utilization rate is up to 83.5% of the pre-Lunar New Year level. According to Baidu, the number of new cases reached its lowest level since January 26 on Wednesday.

H-Share Update

The Hang Seng slumped another -3.66%/-922 index points closing at 24,309 bringing the 5-day loss to -9.19%. Breadth was a goose egg with zero advancers and all 50 constituents declining. Volume was up 34% from yesterday didn’t touch Monday’s volume spike. Index heavyweights were off -4.44%/-106 index points, Tencent -3.91%/-95 index points and HSBC -4.11%/-94 index points. Today’s best performer was Techntronic -9.55%/-23 index points though energy giant was off -8.33%/-35 index points, pork producer WH Group -7.53% and Apple suppliers Sunny Optical and AAC off -7.26%/-18 index points and -7.11%/6 index points. Today’s best performer was Bank of Communication -1.61%/-2 index points. Investors didn’t differentiate between Hong Kong-listed Chinese companies and Hong Kong-domiciled companies as both were down by -3.42% and -3.94%, respectively, using the HS China Enterprise and HS HK 35 indexes as proxies. The Hong Kong-listed Chinese companies within the MSCI China All Shares Index lost -3.88% led lower by energy -6.01%, tech -5.75%, health care -5.72%, discretionary -5.08%, communication -4.08%, materials -3.59%, utilities -3.59%, industrials -3.53%, real estate -3.36%, staples -2.94%, and financials -2.8%. Southbound Connect volumes were very high and above the new normal of elevated trading as Mainland investors were buyers of Hong Kong-listed stocks in size. Volume leaders CCB saw 10 to 1 buying, Tencent 2 to 1 buying and ICBC 166 to 1 buying. Mainland investors bought $1.632 billion of Hong Kong stocks today which accounted for 9.3% of Hong Kong turnover.

A-Share Update

The Shanghai & Shenzhen were down -1.52% and -2.2%, respectively, as volume fell 13% from yesterday though still above the 1-year average. Breath was awful with only 484 advancers and 3,260 decliners as large caps were off less than mid and small caps. The Mainland stocks within the MSCI China All Shares Index were off -2.85% led lower by health care -3.98%, staples -3.5%, materials -3.45%, communication -3.32%, discretionary -3.19%, industrials -3.18%, energy -2.51%, tech -2.48%, real estate -2.37% financials -1.96% and utilities -1.87%. Northbound Connect volumes were high as foreign investors continue to de-risk their portfolios by selling everything including Mainland stocks. Shenzhen Connect volumes were higher than Shanghai as the latter saw more pronounced selling pressure. MSCI inclusion stocks Kweichow Moutai and Ping An were sold 5 to 1 and 2 to 1. It is interesting that Shenzhen stocks were not sold heavily. Foreign investors sold $1.1.94 billion of Mainland stocks as Northbound Connect volume accounted for 5.1% of Mainland turnover.

Last Night’s Prices & Yields

  • CNY/USD 7.03 versus 6.96 yesterday
  • CNY/EUR 7.84 versus 7.85 yesterday
  • Yield on 1-Day Government Bond 1.57% versus 1.60% yesterday
  • Yield on 10-Year Government Bond 2.64% versus 2.61% yesterday               
  • Yield on 10-Year China Development Bank Bond 3.08% versus 3.09% yesterday
  • Commodities were off significantly on the Shanghai & Dalian Exchanges with Dr. Copper were off -2.31%