China Trade Data Lifts Markets
Asian equities were very resilient considering the drop on Wall Street yesterday. A key driver was the 10 am local time release of China’s strong trade data. However, there were several positive catalysts. Mainland China was driven higher by growth stocks such as companies that provide parts to Tesla China on strong March sales data. Hong Kong tech was off on lower than anticipated March unit sales from Apple supplier AAC Technologies which was off -3.21%. A Hong Kong newspaper noted that Apple’s China iPhone sales increased 19% year over year to 2.5mm using data from Chinese sources.
Hong Kong’s most traded stocks were my three favorite Hong Kong listed names: Tencent +0.92%, Alibaba HK +2.76%, and restaurant delivery company Meituan Dianping +0.52%. Healthcare had a strong day as well. Three vaccine trials were approved by the Ministry of Science and Technology. 108 people courageously volunteered to be injected with coronavirus after taking a trial vaccine in early March. According to a Mainland media source, all are in good shape. Obviously, there is a global effort to find a vaccine. My colleague Bill drew my attention to an article about the global effort by scientists working together. The article noted how forthcoming Chinese scientists have been with data, observations, and the results of their drug cocktail efforts, sharing their findings with global counterparts. Healthcare’s strong outperformance is starting to gain more traction in Asia.
Several sell side analysts raised their price targets on Alibaba yesterday. Companies held conference calls with analysts prior to implementing a quiet period in advance of releasing earnings. Alibaba’s quiet period has begun. Clearly, the company’s calls with analysts were positive leading to a flurry of raised price targets. Alibaba isn’t alone in holding such calls as we know that JD.com has been doing the same. I spoke to a China internet analyst yesterday who participated in both companies’ calls and she felt that they went well. She reaffirmed our view that the quarantine changed consumer behavior to the benefit of these names. She felt that the global economic slowdown will lead to these companies having a stronger domestic focus going forward. She believes online retail sales will outpace offline retail. Online’s current 20% command of total retail sales is likely to increase.
The WSJ published a good read on former NY Knicks basketball star Stephon Marbury, who moved to Beijing after retiring from the NBA in 2010. Today Stephon coaches a professional basketball team which will resume play soon. A worthwhile read if you have time!
March Trade Data
Renminbi Year over Year
|Exports||-3.5% versus estimate -12.8%|
|Imports||+2.4% versus estimate -7%|
|Trade Balance||139B versus estimate 158B|
USD Year over Year
|Exports||-6.6% versus estimate -13.9%|
|Imports||-0.9% versus estimate -9.8%|
|Trade Balance||$19.9B versus estimate $20B|
Take away: The release came in much better than anticipated though the nattering nabobs of negativity are completely dismissing the strong data due to the global economic downturn. Yes, that is true as China’s Q1 GDP release on Friday is likely going to be awful. As noted previously, shipping companies are idling their fleets due to the slowdown. Our friend Ken in Hong Kong sent photos of empty container ships in Hong Kong harbor. The release shows a sharp slowdown in trade with the US and European Union. As investors, we want to focus on where the economic growth in China is now coming from: the consumer. While China will not be immune to a global slowdown, domestic consumption is likely to hold up post quarantine.
The Hang Seng rebounded +0.56%/+135 index points to close at 24,435. Volumes were +18% higher than Thursday and moderately higher than the 1-year average. Breadth was positive with 32 advancers and 16 decliners led by index heavyweights Tencent +0.92%/+24 index points, HSBC +1.1%/+22 index points and Ping An Insurance +1.38%/+19 index points. CK asset, owned by Li Ka-Shing, a retired Hong Kong tycoon known as Superman for his business prowess, was the best performer +3.76%/+14 index points while Apple supplier AAC Tech -3.21%/-2 index points. Hong Kong-domiciled companies outpaced Chinese domiciled companies +0.97% versus +0.37% using the Hang Seng HK 35 and Hang Seng China Enterprise Indices as proxies. The Chinese companies listed in Hong Kong within the MSCI China All Shares Index gained +0.54% led higher by materials +2.34%, health care +0.97%, industrials +0.88%, communication +0.79%, staples +0.66%, financials +0.61%, real estate +0.41%, utilities +0.12% and discretionary +0.04%. Tech and energy were off -0.67% and -1.12%. Southbound Connect, the trading venue that allows Mainland Chinese investors to buy Hong Kong-listed stocks, saw light volumes in mixed trading. Volume leader Sunac had slightly more buy trades than sell trades while Tencent was sold 2 to 1. China Construction Bank was bought 3 to 1. Mainland investors bought $66mm worth of Hong Kong-listed stocks as Southbound Connect trading accounted for 9% of Hong Kong’s turnover.
Shanghai and Shenzhen opened higher and grinded higher all day to close +1.59% and +2.22%, respectively. Volume picked up 18% from yesterday’s lackluster volume while breadth was strong with 3,194 advancers and only 540 decliners. It was a very broad rally as mid and small caps outpaced large caps by ~1%. The Mainland Chinese companies within the MSCI China All Shares Index gained +2.02% led higher by tech +3.47%, communication +3.25%, industrials +2.21%, materials +2.14%, real estate +1.97%, health care +1.82%, staples +1.78%, financials +1.56%, discretionary +1.41%, energy +1.27% and utilities +0.54%. Northbound Connect, the trading venue that allows foreign investors to buy Mainland Chinese stocks, saw strong volumes with buyers back in force. While both Shanghai (large companies, mainly State-Owned Enterprises) and Shenzhen (mainly mid and small caps, private companies) had strong volumes and buying, Shenzhen’s volume and buying were stronger. Foreign investors bought $2.017 billion worth of Mainland stocks today as Northbound Connect accounted for 7.2% of Mainland turnover. Wow! Big day for Connect.
Last Night’s Prices & Yields
- CNY/USD 7.05 versus 7.05 yesterday
- CNY/EUR 7.73 versus 7.69 yesterday
- Yield on 1-Day Government Bond 0.63% versus 0.81% yesterday
- Yield on 10-Year Government Bond 2.56% versus 2.57% yesterday
- Yield on 10-Year China Development Bank Bond 2.87% versus 2.85%
- Commodities on the Shanghai & Dalian Exchanges were mixed with metals higher but materials lower with Dr. Copper +0.19%