Daily Posts

Markets Ignore March Industrial Profits And Look Forward, Not Back

Key News

Asian equities had a strong day on positive developments. Economies have begun to reopen globally and the US has passed another much-needed stimulus bill. VW, the world’s largest car manufacturer, is reopening its largest factory in Germany, where the government has given many businesses the green light to open up. Meanwhile, US states start down a similar path, though the pace of reopening varies regionally.

It is important to realize that China reopened out of economic necessity. Furthermore, China, as well as most Asian countries, have a pandemic playbook that includes abiding by quarantines unquestioningly. Also important to note is the fact that there is neither mass testing nor a vaccine available in China today but they couldn’t allow the economy to “Thelma and Louise” (drive off a cliff for our younger subscribers). This is also why many in China are still nervous. Restaurants have yet to rebound for this reason. About two weeks ago a slew of local officials published videos of themselves eating at restaurants with the goal of instilling confidence in the public to go out to eat again, though evidently to little avail.

Nonetheless, for China, the most important question now is the extent to which the global slowdown will weigh on the local economy. This is a short week due to the May Day and Golden Week holidays in the region. Hong Kong is closed on both Thursday and Friday and Mainland China will be closed from Friday until next Wednesday. Volumes were off in both Hong Kong and the Mainland though we had generally positive policy comments. Hong Kong and the Mainland barely noticed when China’s March Industrial Profits was released -34.9% at 9:30 am local time. Like earnings, investors are looking forward and not back and steep declines in the figure had already been priced in. After reading two dozen pages of macroeconomic doom and gloom over the weekend I felt like yelling “uncle”. I am very interested to see if gamblers return to Macau over the coming holiday. In Hong Kong, the most heavily-traded stocks were Tencent (700 HK) +1.62% on twice the volume of China Gas (384 HK) +10.51% after a number of stock analyst upgrades and Alibaba (9988 HK) +1.31%.

Is the data real? When it comes to China, opinions range from skepticism to outright distrust. What is missed is understanding the role technology has changed how asset managers evaluate companies and the economy. Satellites can monitor air pollution to determine the extent to which factories have restarted. Meanwhile, private companies mine cellphone data to track which stores people are walking into. Considering China’s adoption of mobile payments, there now exists a treasure of data that is for sale. Stock analysts and asset managers now pay for this data. In the case of China’s internet companies, we can access databases that provide monthly and daily users. While government releases are important, there is plenty of supportive data providers that can be used to assess the veracity of official figures.

Reports vary on whether Jiang Fan, Alibaba’s head of its Taobao and Tmall e-commerce platforms, has left the company or been demoted after his wife accused him of having an affair on Weibo, the Twitter of China. Important job but replaceable. 

H-Share Update

The Hang Seng opened higher and grinded from the lower left to the upper right all day to close +1.88%/+448 index points at 24,280. Volume was up +5% from Friday though below the 1-year average while breadth was very strong with 48 advancers and just 2 decliners. Index heavyweights led the way with China Construction Bank (CCB) +2.66%/+53 index points, AIA +2.01%/+49 index points and Tencent +1.62%/+44 index points. Wharf Real Estate was the best performer +5.26%/5 index points while AAC Tech was off -1.2%/-0.9 index points. China-domiciled companies listed in Hong Kong outpaced Hong Kong-domiciled companies, +2.27% versus +1.68% using the HS China Enterprise and HS HK 35 indices as proxies. The Chinese companies listed in Hong Kong within the MSCI China All Shares +2.03% led higher by utilities +4.93%, real estate +2.62%, financials +2.36%, health care +2.06%, discretionary +1.99%, staples +1.83%, industrials +1.81%, communication +1.74%, tech +1.13%, energy +0.76% and materials +0.75%. Southbound Connect volumes were light in mixed trading with volume leader Tencent seeing buyers outpace sellers while Semiconductor Manufacturing saw sellers outpace buyers. Mainland investors bought $107mm worth of Hong Kong-listed stocks today as Southbound Connect trading accounted for nearly 9% of Hong Kong’s turnover.

A-Share Update

The Shanghai & Shenzhen opened lower but rallied before stalling to close +0.25% an +0.06%, respectively, on light volumes -11% just below the 1-year average. Breadth was off with 1,501 advancers and 2,164 decliners as large, mid and small caps trade in line with one another. The Mainland stocks within MSCI China All Shares Index gained +0.64% led higher health care +1.7%, financials +1.17%, staples +1.07%, real estate +0.9%, utilities +0.54%, tech +0.41%, communication +0.05% and industrials +0.01%. Discretionary was off -0.46%, materials -0.63% and energy -0.64%. Northbound Connect trading was moderate as foreign investors were buyers of Mainland stocks. Volume leader and MSCI inclusion stock Kweichow Moutai saw sellers outpace buyers by a small margin. Meanwhile, Ping An Insurance saw buyers outpace sellers by 8 to 5. Foreign investors bought $556mm of mainland stocks today as Northbound Connect trading accounted for just over 5% of the Mainland’s turnover.                                                                       

Last Night’s Prices & Yields

  • CNY/USD 7.09 versus 7.08 on Friday
  • EUR/CNY 7.69 versus 7.65 on Friday
  • Yield on 1-Day Government Bond 0.57% versus 0.61% on Friday
  • Yield on 10-Year Government Bond 2.53% versus 2.52% on Friday
  • Yield on 10-Year China Development Bank Bond 2.82% versus 2.80% on Friday                
  • Commodities on the Shanghai & Dalian Exchanges were mixed/lower with Dr. Copper +1.79%