Key News

The US’ sharp selloff on Friday put pressure on Asian equities, which suffered mild losses. Australia was a standout +7% following the announcement of a strong stimulus package. Meanwhile, Hong Kong and Mainland China came off their lows in the afternoon as the PBOC articulated details of continuing monetary support during a press conference.

The government announced further economic and fiscal policy support late Friday. In the morning, the PBOC cut the 7-day repo rate by 20 basis points and increased liquidity in the financial system which is a very strong suggestion that the loan prime rate (LPR) will be cut in two weeks. The government now appears likely to lower its 2020 GDP target as well.

It is worth noting that the PBOC has cut interest rates at a much slower pace than the Fed, thereby keeping its powder dry. The PBOC began its response to the outbreak with fiscal policy and is only now considering lowering interest rates across the board. This strategy is the opposite of that adopted by the Fed in the US, which first responded by dramatically lowering the federal funds rate to near zero, thereby nearly exhausting its monetary policy firepower, and did not provide fiscal stimulus until recently.

Tencent and Alibaba HK were off -1.52% and -1.96%. Mainland tech was off following a sell analyst downgrade as analysts appear to be cutting global smart phone sales.

I noticed that the number of travelers going through TSA check points has declined nearly 90% compared to a year ago at the same time. Limiting domestic travel was critical in China’s efforts to limit the spread of coronavirus. The number of flights in China declined 90% during the quarantine.

After the close in Hong Kong, food and restaurant delivery company Meituan Dianping (3690 HK) reported strong Q4 results. The company’s Q1 guidance due to coronavirus was weak as the company expects a loss for the quarter. 

• Revenue +100% YoY to RMB 28.2B versus estimate 26.51B
• Gross Margin 34.5% versus estimate 32.8%
• Profit RMB 1.460B versus a loss in Q4 2018

H-Share Update

The Hang Seng fell -1.32%/-309 index points to 23,175 on light volume off -11% from Friday. Breadth was off with only 7 advancers and 41 decliners, led HSBC -1.98%/-43 index points, Tencent -1.52% and AIA Group -0.87%/-20 index points. Today’s best performer was PetroChina +2.75%/+4.6 index points followed by China Mengniu Dairy +2.72%/+6 index points and China Shenhua Energy +2.09%. The worst performers were Sands China -4.92%/-11.8 index points, Sunny Optical -4.86%/-10.7 index points and Galaxy Entertainment -4.81%/-12.8 index points. China-domiciled companies outperformed Hong Kong-domiciled companies -1.08% versus -2.16% 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 -1.33% led lower by discretionary -2.82%, tech -2.81%, industrials -1.99%, real estate -1.93%, communication -1.48%, utilities -1.44%, materials -1.2%, healthcare -0.97%, financials -0.68%, energy -0.15% and staples -0.09%. Southbound Connect volume was light though buyers outpaced sellers by 3 to 2. Volume leader Tencent had 4 to 1 buyers, China Construction Bank 10 to 1 and China Shenhua had sellers outpace buyers by a small margin. Mainland investors bought $497mm worth of Hong Kong-listed stocks as Southbound Connect trading accounted just over 9% Hong Kong turnover. 

A-Share Update

The Shanghai & Shenzhen had a small afternoon rally closing -0.9% and -2.11% though breadth was awful with only 699 advancers and 3,048 decliners. Volume was flat from Friday, but above the 1-year average. Large caps fared better than mid and small caps, falling half as much. The Mainland stocks within the MSCI China All Shares Index were off -1.23% with utilities the only positive sector +0.21%, energy -0.32%, industrials -0.39%, staples -0.48%, financials -0.8%, real estate -1.18%, health care -1.5%, discretionary -1.59%, materials -1.84%, communication -2.88% and tech -3.08%. Northbound Connect volumes were light compared to the outsized volumes of late in mixed trading. Volume leader MSCI inclusion stock Kweichow Moutai saw sellers outpace buyers 5 to 3 while Ping An Insurance saw buyers outpace sellers by 3 to 2. Foreign investors sold $17mm worth of Mainland stocks as Northbound Connect trading accounted for just over 5% of Mainland turnover.

Last Night’s Prices & Yields

• CNY/USD 7.10 versus 7.10 on Friday
• CNY/EUR 7.82 versus 7.83 on Friday
• Yield on 1-Day Government Bond 1.24% versus 1.15% on Friday
• Yield on 10-Year Government Bond 2.61% versus 2.61% on Friday
• Yield on 10-Year China Development Bank Bond 2.99% versus 3.00% on Friday
• Commodities were lower on the Shanghai & Dalian Exchanges with most metals higher though Dr. Copper were off -1.13%