Key News

Asian equities opened higher but largely faded as traders locked in profits before the weekend. Japan and Indonesia were standouts as both gained +4% while Australia fell hard -5% though most markets had mild gains. Taiwan was off slightly off. News that the US is attempting to restrict Huawei’s chip purchases could be an issue for Taiwan Semiconductor Manufacturing (TSMC), which fell -2.5%. TSMC is currently the third-largest company in the MSCI Emerging Markets Index at a 4.6% weighting. It is somewhat disconcerting that anyone in this administration is focused on Huawei rather than stopping the coronavirus outbreak.

Hong Kong managed a small gain despite recent outperformers experiencing profit-taking. Li Ka-Shing, who is also known as “Superman” due to his investment and business acumen, announced purchases in two of his public traded companies CK Hutchison Holdings and CK Asset Holdings. Though retired with a son at the helm of their empire, Hong Kong’s Warren Buffett can still move markets as real estate stocks in both Hong Kong and Mainland China rose on the news. His company's stock ticker "1" is pretty easy to remember. How cool is that!

Macau stocks were under pressure as Mainland restrictions on travel abroad would include the territory. Tencent and Alibaba’s Hong Kong listings gained +0.6% and +1.66%, respectively. Meanwhile, restaurant delivery company Meituan Dianping was the 5^thmost heavily traded stock in Hong Kong, down -0.94% as investors worry about the company’s earnings release Monday. Mainland markets also saw many recent outperformers underperform due to profit-taking.

February Industrial Profits fell -38% according to the National Bureau of Statistics. However, this was far from a surprise for investors and did not move markets. A Ministry of Finance spokesperson noted that retail sales in China have picked up. Vipshop noted in its investor relations conference call this morning that life is resuming to normal in China. Nonetheless, online sales continue to lead brick-and-mortar.

Hangzhou is providing vouchers to citizens to support the local economy. On Thursday the Ministry of Foreign Affairs released President Xi’s notes from his calls with G-20 leaders. China has put together a $344B fiscal package including RMB 1.2 trillion of liquidity support. China has already spent RMB 1.2 trillion in fighting the outbreak and implemented RMB 1 trillion in tax cuts.

US pension plans are expected to raise their equity positions at quarter-end. Several brokers cited yesterday’s large Market-on-close buying as evidence. Emerging market managers now have a China problem because China is 36% of the benchmark and vastly outperforming. Exacerbating the issue has been the fact that Mainland Chinese companies are outperforming companies based in Hong Kong by a vast margin. They may buy China equities as they attempt to "window dress" their portfolios prior to quarter-end reviews.

Within China, healthcare has been the best sector YTD. Global de-risking has led to strong outflows for the previous two weeks. However, we saw a slight rebound this week. Is it a coincidence that the top volume stock in Northbound Connect was a Chinese healthcare stock? I think not!

H-Share Update

The Hang Seng opened higher +1.78% and bounced around to close +0.56%/+131 index points at 23,484. Volume was up a hair from yesterday though still above the 1-year average. Breadth was positive with 33 advancers and 16 decliners. For the week, the index was +2.98% bringing YTD performance to -16.69%. The top index movers were AIA +1.7%/+40 index points, CK Hutchison +5.48%/+23 index points, and CK Asset Holding +4.99%/+16 index points. AAC Technology was the day’s worst performer -4.39%/-3.5 index points with Macau’s Galaxy Entertainment -3.72%. Hong Kong-domiciled companies outperformed China-domiciled companies by a small margin +0.7% and +0.61% using the HS China Enterprise and HS HK 35 indexes as proxies. The 205 Chinese companies listed in Hong Kong within the MSCI China All Shares Index gained +0.54%, led by real estate +2.15%, discretionary +2.14%, utilities +1.94%, energy +1.91%, industrials +1.85%, materials +0.36%, financials +0.24% and communication +0.15%. Recent top performers health care, tech, and staples were off -1.57%, -0.58% and -0.08%. Southbound Connect volumes were somewhat light in mixed trading. Today was the first day that sellers’ activity almost outpaced that of buyers. Volume leader Tencent saw sellers outpace buyers by a small amount, while China Mobile and Sunac saw buy volume outpace sell volume. Mainland investors bought $68mm worth of Hong Kong stocks today and Southbound Connect trading accounted for 9% of turnover.

A-Share Update

Shanghai and Shenzhen also had a choppy day, closing +0.26% and -0.46%, respectively, as volume was off somewhat day over day. Breadth was mixed with 2,103 advancers and 1,494 decliners. Large/mega caps had a stronger day as mid and small caps were off between -0.5% and -1%. The Mainland stocks within the MSCI China All Shares Index gained +0.22% led by real estate +1.39%, industrials +0.99%, staples +0.87%, utilities +0.54%, discretionary +0.39%, materials +0.35%, financials +0.25% and energy +0.2%. Recent winners Communication, tech and healthcare were off -1.15%, -.94%, and -0.5%, respectively. Northbound Connect volumes were off though foreign investors were once again buyers on both exchanges. Despite Shenzhen Connect stocks having great volumes, buying pressure was more pronounced in Shanghai Connect. Healthcare stock Jiangsu Hengrui Medicine joined our usual friends Ping An Insurance and Kweichow Moutai on top of the volume leader board. Foreign investors bought $481mm worth of Mainland stocks today and Northbound Connect trading accounted for 5.2% of Mainland turnover. For the week, foreign investors bought $78mm worth of Mainland stocks.

Last Night’s Prices & Yields

• CNY/USD 7.10 versus 7.07 yesterday
• CNY/EUR 7.80 versus 7.79 yesterday
• Yield on 1-Day Government Bond 1.15% versus 1.04% yesterday
• Yield on 10-Year Government Bond 2.61% versus 2.59% yesterday
• Yield on 10-Year China Development Bank Bond 3.00% versus 3.01% yesterday
• Commodities were mixed on the Shanghai & Dalian Exchanges with most metals higher though Dr. Copper was off -0.1%