Key News

Asian equities were largely lower overnight. However, Mainland China managed to outperform as the PBOC announced just after the market open that it cut its 1 and 5-Year Loan Prime Rates (LPR) by 20 bps and 10 bps, respectively, to 3.85% and 4.65%, as the market had anticipated. The Mainland market also benefitted from investors’ review of policies related to “new” infrastructure such as 5G, AI and Big Data as tech and healthcare outperformed today. Hong Kong had a lackluster day in advance of a busy week of earnings releases. Volume leaders Tencent and Alibaba were off -0.24% and -0.87%.

Overall, it was a relatively quiet day on the other side of the Pacific. Shanghai, Shenzhen and Hong Kong indices appear to sitting at their support levels from the last several weeks. Oil is plunging today following news that a Singapore energy trading firm discovered a trader was hiding large losses. Massive drawdowns like we are seeing in oil today look like a margin call. Brokerage houses or futures exchanges will liquidate a trader’s position if they fail to meet a margin call.

Last week we mentioned our conversation with a China internet analyst. She agreed with our thesis that the quarantine changed habits, especially for those who hadn’t used internet services previously. However, she introduced a new idea that Chinese manufacturers would pivot domestically as the global economy slows. Her thesis was validated as Pinduoduo (PDD US) announced it would be buying $200mm convertible bonds of home appliance maker Gome (493 HK) in exchange for selling their goods online. A great call on her part!

Alibaba (BABA US) announced it will spend $28B to bolster its Alibaba Cloud unit. Gaming company Kingsoft (3888 HK) rose +5.67% after it filed a F-1 with the SEC to list its cloud computing unit Kingsoft Cloud in the US.

H-Share Update

The Hang Seng stayed within a narrow band all day in lackluster trading with volumes off -34% from Friday to close -0.21%/-49 index points at 24,330. Breadth was off with 17 advancers and 33 decliners. HSBC finally had a positive day +1.39%/+27 index points, AIA -0.62%/-15 index points and China Mobile +1.16%/+13 index points. Today’s best performer was Sino Biopharma +2.95%/+8 index points followed by energy giant CNOOC +1.55%/+7 index points. On the downside, Sun Hung Kai Properties was the worst performer -2.94%/-10 index points followed by Hong Kong subway operator MTR Corp -2.43%/-4 index points. Chinese companies outperformed Hong Kong companies +0.09% versus -0.55% using the HS China Enterprise and HS HK 35 indexes as proxies. The Chinese companies within the MSCI China All Shares Index +0.23% were led higher by health care +3.18%, materials +1.16%, discretionary +1.09%, utilities +0.85%, energy +0.73%, industrials +0.68%, tech +0.61% and communication +0.02%. Real estate was down -1.23%, staples -0.34%, and financials -0.24%. Southbound Connect volumes were light though Mainland investors were active buyers of Hong Kong stocks. Volume leader Tencent saw 9 to 1 buyers while Semiconductor Manufacturing and Sunac were both sold 2 to 1. Mainland investors bought $340mm worth of Hong Kong stocks today as Southbound Connect trading accounted for just over 7% of Hong Kong turnover.

A-Share Update

Shanghai & Shenzhen rose +0.5% and 1%, respectively, on volume that increased by 16% from Friday and was above the 1-year average. Breadth was strong with 2,320 advancers and 1,236 decliners as mid and small caps outperformed large caps. The Mainland stocks within the MSCI China All Shares Index +0.55% led higher by health care +1.34%, tech +1.21%, energy +1.08%, industrials +0.52%, materials +0.49%, discretionary +0.45%, staples +0.42%, communication +0.42%, financials +0.22% while real estate and utilities were off -0.37% and -0.68%. Northbound Connect trading volumes were light though foreign investors were active buyers of Mainland stocks. Shanghai Connect volume leaders and MSCI inclusion stocks Ping An Insurance and Kweichow Moutai were sold 2 to 1 and 3 to 2, respectively. Healthcare company Wuxi Apptec was bought 5 to 1. Foreign investors bought $7mm worth of Mainland stocks today as Northbound Connect trading accounted for nearly 5% of Mainland turnover.

Last Night’s Prices & Yields

• CNY/USD 7.07versus 7.07 Friday
• CNY/EUR 7.69 versus 7.69 Friday
• Yield on 1-Day Government Bond 0.46% versus 0.46% Friday
• Yield on 10-Year Government Bond 2.59% versus 2.56% Friday
• Yield on 10-Year China Development Bank Bond 2.84% versus 2.88% Friday               
• Commodities on the Shanghai & Dalian Exchanges were mixed with Dr. Copper +0.47%