Caixin PMI Data

Takeaway: As we discussed yesterday, Caixin PMI is calculated by London-based, NYSE-listed financial data company IHS Markit. They use a smaller data set than the “official” PMI calculated by the National Bureau of Statistics (NBS). They are focused on private companies that are small and medium enterprises versus the NBS’ focus on state-owned enterprises. It is a good sign that smaller companies, which account for the most employment in China, saw a sharp uptick in March. Remember the calculation is month over month, so we are coming up from a dreadful February print. Regardless, it shows that China has gone back to work in a very significant way.

Key News

Eastern Asian markets were off modestly until mid-afternoon. China and Taiwan were up for the day while US equity futures opened for trade and plummeted. The large drawdown in US equity futures immediately sent markets south. This has occurred a few times now in a discerning trend. Australia had a great day +3%. It seems it was spared the pain because it closes around mid-day HK time. Japan, Korea and India were all outliers to the downside. One broker noted that foreign investors have redeemed out of South Korea for 20 trading days in a row. Do they have any holdings left? If China is FIFO (first in first out), then South Korea is coming in second. Japan’s Tankan (PMIs) were awful sending equities lower.

The BIG news in Hong Kong was HSBC cut its dividend and suspended its buyback, sending the stock down -9%. HSBC accounted 187 of the Hang Seng’s 517 point loss. Another factor was Chinese auto maker BYD’s earnings missed expectations, which weighed on autos as a whole. The HK retail sales number we discussed yesterday was released after yesterday’s close, -44% year over year. Macau’s March revenues were released and off a mere -80% year over year in a surprise to absolutely no one. Smart phone maker, Xiaomi (1810 HK), reported what appeared to be strong earnings but was off -2.3% regardless. Alibaba’s HK listing (9988 HK) gained +0.33% after announcing it will be buying a stake in logistics/delivery company, Yunda.

Mainland China was having a good day until the US futures opened sending the market down into the close. The Caixin PMI rebound helped lift markets as well as government policies around electric vehicle subsidies being extended two more years and further support for private, small-medium enterprises. I’ll provide a quarter review soon, although spoiler alert: healthcare.

H-Share Update

The Hang Seng’s slightly off day turned into a full-blown slump during the afternoon session, closing -2.19%/-517 index points at 23,085. Breadth was off with only 6 advancers and 43 decliners as volume picked up +15.7% from the day before. The surprise dividend cut announcement from HSBC led it to fall -9.51%/-187 index points, making it the day’s worst performer. China Construction Bank was -2.05%/-41 index points and Tencent was -1.53%/-38 index points. Bank Of China HK was the best performer at +1.17%/+2.8 index points with several real estate companies managing gains.

HK domiciled companies outperformed Chinese domiciled companies at -1.67% and -1.98% respectively, using the HS HK 35 and HS China Enterprises as proxies. Chinese companies listed in HK within the MSCI China All Shares Index fell -1.84% with health care -1.04%, tech -1.23%, materials -1.24%, communication -1.46%, real estate -1.62%, financials -1.79%, industrials -1.87%, energy -1.98%, staples -2.94%, utilities -3.4% and discretionary -4.14%. Southbound Connect flows were light, although mainland investors continue to buy HK listed stocks. Shanghai Connect volume leader, Tencent, had buyers outpace seller by a small margin, CCB had massive buying at 32 to 1, and ICBC had buyers of 12 to 1. In the Mainland, investors bought $386mm worth of HK stocks today as Southbound Connect trading accounted for just shy of 9% of HK turnover.

A-Share Update

The Shanghai & Shenzhen markets opened slightly lower, then traded in the green up until the last hour of trading, when the indices were pushed into the red at -0.57% and -0.35%, respectively. Volume was +4% from yesterday, putting today just above the 1 year average. Breadth tilted south with 1,428 advancers and 2,157 decliners as large, mid and small caps traded with one another. Mainland Chinese stocks within the MSCI China All Shares Index were off -0.57% with real estate and tech gaining +0.7% and +0.68% though materials was off -0.15%, financials -0.32%, industrials -0.78%, discretionary -1.02%, energy -1.06%, energy -1.06%, communication -1.14%, utilities -1.25%, staples -1.25% and health care -1.67%. Northbound Connect trading was moderate with Shenzhen’s volume and buying outpacing the Shanghai’s. Shanghai Connect volume leader and MSCI Inclusion stock, Kweichow Moutai, had buyers outpace sellers by a small amount while Ping An had 3 to 2 sellers. Foreign investors bought $596mm of mainland stocks today as Northbound Connect accounted for 5.4% of mainland turnover.

Last Night’s Prices & Yields

• CNY/USD 7.10 versus 7.10 yesterday
• CNY/EUR 7.76 versus 7.77 yesterday
• Yield on 1-Day Government Bond 1.20% versus 1.20% yesterday
• Yield on 10-Year Government Bond 2.67% versus 2.67% yesterday
• Yield on 10-Year China Development Bank Bond 3.11% versus 3.12% yesterday
• Commodities were lower on the Shanghai & Dalian Exchanges with most metals higher, although Dr. Copper was -0.13%