Trade Tensions Lead To Risk-Off
Asian equities cratered today on threats of new US tariffs as US-China tensions led to a risk-off day. Media outlets have outlined a meeting with President Trump and his reelection team on how to counter his standing in swing states polls. Recommendations included stopping his daily press conferences and taking advantage of poor voter views of China. Unfortunately, we should expect more rhetoric leading up to the election.
Three markets were spared the carnage due to the market holiday. Japan is closed until Thursday, Mainland China reopens Wednesday, and Thailand is closed today, open tomorrow, and closed again on Wednesday.
Hong Kong’s Q1 GDP came in at -8.9% after the market close though Hong Kong’s quarantine is ending. Today’s most heavily traded stocks Tencent, Alibaba, AIA, and Ping An sank -4.08%, -3.71%, -5.63%, and -2.13%, respectively, as brokers cited Amazon and Apple’s weakness as weighing on high growth stocks. The energy sector was a disaster while real estate firm Soho (410 HK) plunged -25.68% after reports that investment from US private equity firm Blackstone fell through. This was not a great start to the week.
The US-China Business Council, a non-partisan non-profit comprised of 200 US companies that do business in China, released its 2020 State Export Report, which contained a multitude of interesting data points. Despite trade tensions, China was the third-largest export market for US goods worth $104 billion, which is well off the $127 billion pre-trade war. In comparison, Canada received $281B, Mexico $248B, and Japan $72B. China also ranks third for receiving US service exports, which totaled $55B in 2019, behind the United Kingdom’s $73B and Canada’s $63B. Service exports have increased by 229% over the last decade. What is counted in services? China’s tourism in the US accounts for $17B, while Chinese students studying accounts for another $13.5B. Financial services, royalties, and trademarks make up the rest. Just under 1 million US jobs are supported by US exports to China. However, 100,000 jobs have been lost due to the trade war.
Publicly traded REITs will be launched for the first time in China. The launches are likely to fund infrastructure development just as they do here in the US. I am curious as to what the yields will be.
The Hang Seng opened lower -3% and managed to fall further from there closing -4.18%/-1,029 index points to end the session at 23,613 index points. Volumes surged 27% from last Wednesday while breadth laid a goose egg with zero advancers and 50 decliners. Index heavyweights led the way lower with AIA -5.63%/-133 index points, Tencent -4.08%/-109 index points, and China Construction Bank -4.11%/-81 index points. Security broker CITIC was the worst performer -9.42% with energy giants PetroChina, China Petroleum & Chemical, and CNOOC off -8.6%/-14 index points, -8.42%/-22 index points and -8.17%./-31 index points. Today’s “best” performer, Bank of China Hong Kong was only off -2.1%/-5 index points. Hong Kong-domiciled companies “outperformed” China-domiciled companies -3.44% versus -4.4%, using the HS HK 35 and HS China Enterprise indexes as proxies. The Chinese companies listed in Hong Kong within the MSCI China All Shares Index -4.11% led lower by energy -7.03%, real estate -5.81%, financials -4.1%, communication -4.07%, industrials -3.84%, health care -3.83%, discretionary -3.49%, utilities -3.47%, materials -3.37%, tech -2.64%, and staples -2.4%. Southbound Connect remains closed.