Key News

Asian equities had a resilient day considering the carnage in US equities. India had a strong day on stimulus chatter while Mainland China closed higher. However, Japan continues to tighten its quarantine, which weighed on sentiment. The main catalyst on the Mainland was Kweichow Moutai’s earnings report for the fiscal year 2019. The strong results led to a +3.71% pop with fellow alcohol stocks rallying and thereby leading the consumer staples sector to an impressive day in both the Mainland and Hong Kong. The other standout sector was healthcare as tele-doctor companies Ping An Healthcare (1833 HK) and Alibaba Health (241 HK) ripped +7.2% and +10.89%, respectively, on very strong volumes making them the third and fifth most heavily-traded companies. Tencent (700 HK) and Alibaba HK (9988 HK) gained +2.2% and +0.69%.

Apple suppliers were weaker on chatter iPhone rollouts might be delayed slightly. China Mobile (941 HK) had a good day +2.67% following positive news on China’s 5G rollout. The company had previously reported that 7mm subscribers discontinued their cell service from January to February as Chinese consumers tightened their wallets. Several dubious news sources had reported the drop off was proof of mass coronavirus deaths in China. However, the company, which is audited by PWC, reported in March that 5G customers doubled to 31mm while 4mm customers signed back up.

Our good friend and fixed income guru Nancy Davis of Quadratic Capital reached out to us after seeing an articulation of oil’s fall on China’s current account deficit. In a nutshell, falling oil prices benefit China more than anyone else. if you are not familiar with Nancy’s work check it out!

My colleague Brian noticed that the Financial Times published an article on active EM managers’ underperformance after we had pointed out the study cited a week ago. Good to get one right. It won’t happen today, but once things stabilize active EM is going to face a major day of reckoning.

As a child, my father told my sisters and I the story of a paper industry friend’s visit to a North African Bedouin camp. As the guest of honor, he was presented with the best part of the goat: it’s eyeball. He had no choice but to choke it down. Kweichow Moutai, the largest company in MSCI China A Index, makes a product that goes down like napalm, leaving a skid mark down your throat and into your stomach. The company’s 2019 fiscal year earnings release after Tuesday’s close was quite strong with revenue +15% year over year to CNY 88.85B ($12.545B). Gross profit margin was also up an impressive 91% while net income +17% YoY to CNY 41.2B ($5.817B). The company’s market cap at $212B is now three times larger than Diageo’s $74B. Amazing. In hindsight, maybe my father’s story was to get us to eat our vegetables. Regardless, Kweichow Moutai’s earning are far better than a goat eyeball!

H-Share Update

The Hang Seng opened down -1.06% but grinded higher closing +0.42%/pulling a Wayne Gretzky +99 index points to close at 23,893. Volumes slipped -12.5% while breadth mixed with 26 advancers and 20 decliners. Index heavyweight Tencent had a strong day +2.2%/60 index points followed by the index’s best performer China Mobile +2.67%/+30 index points while HSBC was off -0.77%/-14 index points. China Shenhua Energy was off -1.3%/-1.8 index points as the day’s worst performer. Chinese companies outperformed Hong Kong companies gaining +0.57% versus +0.31% using the HS China Enterprise and HS HK 35 as proxies. The Chinese companies listed in HK within the MSCI China All Shares gained +1.06% led higher by healthcare +2.65%, staples +2.41%, communication +2.15%, discretionary +1.49%, materials +0.94%, industrials +0.93%, utilities +0.93% and financials +0.07% while energy was off -0.68%, real estate -0.23% and tech -0.08%. Southbound Connect, the trading venue that allows Mainland Chinese investors to invest in Hong Kong stocks, had light volumes in mixed trading. Volume leader Tencent had 5 to 3 buyers while Sunac and Semiconductor Manufacturing were sold 3 to 1. Mainland investors bought $124mm of HK stock today as Southbound Connect trading accounted for 8% of HK’s turnover.

A-Share Update

Shanghai & Shenzhen opened lower but had a very strong afternoon gaining +0.6% and +1.05%, respectively, to close at 2,843 and 1,771. Volumes were off a touch -6.95% while breadth was decent with 2,188 advancers and 1,372 decliners. Mid and small caps outperformed large caps though sector exposure was key. The Mainland stocks within the MSCI China All Shares Index gained +0.95% led higher by staples +3.31%, healthcare +1.78%, communication +1.06%, discretionary +0.74%, utilities +0.6%, materials +0.49%, tech +0.45%, industrials +0.42%, real estate +0.35% and financials +0.09%. Energy was off -0.8%. Northbound Connect Stock Connect had light volumes though foreign investors were active buyers in mixed trading. MSCI inclusion name and perennial volume leader Kweichow Moutai had very high volume in mixed trading. Foreign investors bought $166mm worth of Mainland stocks today as Northbound Connect accounted for nearly 5% of Mainland turnover.

Last Night’s Prices & Yields

• CNY/USD 7.08 versus 7.09
• CNY/EUR 7.69 versus 7.70
• Yield on 1-Day Government Bond 0.46% versus 0.46% 
• Yield on 10-Year Government Bond 2.56% versus 2.58% yesterday
• Yield on 10-Year China Development Bank Bond 2.84% versus 2.86% yesterday                
• Commodities on the Shanghai & Dalian Exchanges were lower with Dr. Copper -2.11%