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Markit Caixin Services PMI Shows improvement

March Caixin PMI Services           43 versus estimate 39 and Feb’s 26.5

Takeaway: The release was largely ignored despite a strong rebound as consumer activity picks up. Consumers are coming back to stores post-quarantine though slowly. Sentiment is improving in China though concerns remain over the effect of the global slowdown on China’s economy. China is by no means immune to the global slowdown. However, policymakers are very aware of this. Fiscal and monetary support is being deployed to assist private companies and small to medium-sized enterprises, especially those geared toward export-driven manufacturing. 

Key News

Despite my 20 years in the ETF industry, I have yet to study the new non-transparent, active ETFs. There are many smart people involved, including a few that I know well and call friends. I wish them all the best. My colleague Grant and resident Razorback looked at active emerging managers' mutual funds’ performance on 3/27. The results? Who would want this performance in any structure? Of the eight largest EM mutual funds, with $268B in AUM, only one beat the MSCI Emerging Markets index. ONE! And that was by 0.1%. Congratulations! Active managers are under pressure so what are they going to buy to get those returns up? Best country in EM YTD? China. The best sector in China? Healthcare.

Asian equities were largely off in light trading as Taiwan was closed for a market holiday. Korea managed a small gain along with Thailand and Indonesia, but otherwise, the region largely registered small losses. Singapore has stepped up quarantine efforts for the first time while pushing through a considerable stimulus plan. Tech was off in Hong Kong, Mainland China, and the region as a whole on the news Apple stores will stay closed in the US until early May.

After the close, the PBOC cut the bank reserve requirement ratio for smaller banks by 1% to support lending to private companies and small to medium-sized enterprises. The move releases 400B RMB ($56B) of new potential loans. Like the US, private companies account for the majority of employment. It is crucial that these companies have access to credit as they get their footing post-quarantine. Mainland financials were weak as the PBOC said that a broad interest rate cut is not in the works. In Hong Kong, Tencent (700 HK) was the most heavily traded stock off -0.9% followed by HSBC (5 HK) off another -2.57% following the Bank of England’s mandate that the company cancel its dividends and buybacks this month. China Mobile was #3 +2.62% after announcing a 5G rollout in Hong Kong while Alibaba HK was off -1.24%. Sentiment in Hong Kong was likely off as bars have been ordered to close for 2 weeks to prevent the spread of the coronavirus. Energy names were weak overnight following yesterday’s surge.

Tencent (700 HK) announced this morning that it is increasing its stake in online gaming streamer HUYA Inc (HUYA US). HUYA is China’s version of Twitch, which, if you’re not a teenage esports fan, you are likely unaware of. It is an online TV show featuring people playing video games. Yes, that’s a thing, and yes it’s very popular and, yes, I have no idea why.

Separately, Yuyu Medical (002223 CH) was up another +3.79% following an FDA approval for their ventilators. For the week, foreign investors bought $1.1 billion worth of Mainland stocks through the Northbound Connect trading platform.

Thankfully, we don’t own Luckin Coffee (LK US), which is down -84% for the year. The company was known for an aggressive management style, which is certainly not unique to China. The drop is very disappointing regardless. China’s largest car rental company CARS Inc. (699 HK) fell 54% before being suspended due to shared management with Luckin.

Country - Index	Weekly % Change
Japan - Nikkei 225	-8.09
Hong Kong - Hang Seng	-1.06
China - Shanghai	-0.30
China - Shenzhen	-0.22
Singapore - FTSE Straits Times	-4.70
India - BSE Sensex	-7.46
Indonesia - Jakarta	1.71
Malaysia - FTSE Bursa Malaysia	-0.93
Mongolia - Mongolia Stock Exchange Top 20	-1.46
Pakistan - Karachi 100	12.49
Philippines - Philippines Stock Exchange Composite	1.53
South Korea - KOSPI	0.45
Sri Lanka - Colombo All Shares	0.00
Taiwan - Taiwan Stock Exchange Weighted                     (closed Thursday & Friday)	-0.36
Thailand - Stock Exchange of Thailand	3.55

H-Share Update

The Hang Seng traded within a narrow range closing -0.19%/43.9 index points to close the week at 23,236. Volumes were off -10.8% from yesterday which was below the 1-year average.  Breadth was mixed with 25 advancers and 23 decliners led by HSBC -2.57%/-48. Index points, China Mobile +2.62%/+29.6 index points and China Construction Bank -1.45%/-29.1 index points. China Unicom was the day’s best performer +5.91%/+5.3 index point while Wharf Real Estate -6.07%/-5.6 index points though yesterday’s best performers PetroChina and China Petroleum were off -5.56%/-10.2 index points and -3.2%/-9.2 index points. HK domiciled companies outperformed Chinese companies +0.43% versus -0.37% using the HS China Enterprise and HS HK 35 as proxies. The Chinese companies listed in HK within the MSCI China All Shares returned -0.42% with utilities +2.01%, health care +0.82%, real estate +0.22% and real estate +0.08%. Materials was off -0.14%, communication -0.34%, industrials -0.81%, financials -0.88%, tech -1.52%, discretionary -1.97% and energy -2.68%. Southbound Connect was closed today in advance of China’s market holiday Monday.

A-Share Update

Shanghai & Shenzhen were off -0.6% and -0.47% on light volume -4% from yesterday but back below the 1 year average. Breadth was mixed 1,017 advancers and 2,668 decliners as large, mid and small caps traded in-line with one another. The mainland Chinese companies within the MSCI Call Shares were off -0.41% with health care and staples gaining +1.14% and +0.65%. On the downside real estate was off -0.1%, utilities -0.28%, materials -0.52%, industrials -0.58%, discretionary -0.85%, communication -0.9%, financials -0.95%, tech -1.27% and energy -1.53%. Northbound Connect trading was light though flows diverged with the Shanghai seeing net inflow while the Shenzhen saw net outflow. Once gain Jiangsu Hengrui Medicine topped Shanghai Connect volume ahead of MSCI Inclusion stock Kweichow Moutai. Foreign investors sold $250mm of mainland stock today as Northbound Connect trading accounted for 5% of mainland turnover.

Last Night’s Prices & Yields

• CNY/USD 7.09 versus 7.09 yesterday
• CNY/EUR 7.64 versus 7.70 yesterday
• Yield on 1-Day Government Bond 0.82% versus 1.10% yesterday
• Yield on 10-Year Government Bond 2.60% versus 2.59% yesterday
• Yield on 10-Year China Development Bank Bond 3.94% versus 3.96% yesterday
• Commodities were higher on the Shanghai & Dalian Exchanges with most metals higher though Dr. Copper were off +1.56%