Key News

Asian equities were mixed overnight though China, Hong Kong and South Korea were in a festive mood. The big surprise was the strong performance of Mainland China as foreign investors got it wrong once again. They had anticipated a -3% decline today. China’s currency was also remarkably stable. Growth stocks led the way in the Mainland and Hong Kong driven by multiple catalysts including Kingsoft (3888 HK), which gained +7.05% on its coming Cloud unit IPO.

Semiconductor Manufacturing (981 HK) jumped +10.75% on news the company will issue shares on the STAR Board and positive Huawei phone shipments which lifted the smartphone ecosystem. I have to wonder if the growth/tech rally had something to do with increased US trade rhetoric as Chinese manufacturers would likely pivot from US suppliers to new suppliers both domestically and globally in the event of more barriers to buying from US firms. Tencent was the most heavily traded stock in Hong Kong gaining +0.99% followed by Semiconductor Manufacturing, Alibaba (9988 HK) +2.71%, and restaurant delivery app Meituan Dianping (3690 HK) +3.55%. Alibaba’s Hong Kong listing had significant short interest on chatter Softbank might be forced to sell down its holdings of the company. However, it was reported after the close that the company bought an office building in Singapore.

Labor Day travel and spending statistics look promising with 8mm train rides reported and 104mm total trips (not 100% on the definition of total trips, but I assume it includes road, rail, and air) generating over $6 billion in revenue. Unfortunately, Shanghai Disney missed the post-quarantine influx and will partially reopen next week.

I’ve been very fortunate that my quarantine has gone quite smoothly. However, I do not have access to a TV so no financial programming. Nonetheless, I feel very much connected with markets due to my instant message feeds from our dozen institutional brokers and stock and economic research that I receive by email. I look at a wide variety of media sources in Asia and here in the US as well, though the latter tends to come with some political slant. Ever compare news events on MSNBC to Fox or the NY Times to the NY Post or Washington Times to Washington Post? I’ll look at Mother Jones and then contrast with the Wall Street Journal. The truth is likely somewhere in the middle. I do recommend Reuters for news without a political slant. Reuters had an interesting piece on a Chinese think tank with strong ties to the political leadership. The think tank released a white paper in April noting the rise in bad China sentiment that was very likely read at a high level. Reuters hasn’t seen the white paper but talked to those who have. Fight or flight is the most common human instinct, which may explain an element of the “fight” mentality. But, this is unsustainable and illogical. The trade war proved we are a global economy. This pandemic proves we are a global community. A little empathy goes a long way.

Upon visiting China one is inevitably struck by the adoption of mobile payments as the smartphone has replaced the purse/wallet (what’s the quote from Seinfeld “European carry-all”). City streets are crowded with delivery vans and carts as e-commerce in China has gone full Amazon. In visiting Latin America over the years, I have noticed that Mercado Libre (MELI US) has become quite popular. We’ve taken our China e-commerce thesis and applied it to broader Emerging Markets. Mercado Libre reported Q1 results after the US close yesterday as revenue grew 70.5% year over year to $651mm while total payment volume +82.2% to $8.1 billion! This news is a great validation of our Emerging Market investment thesis! It may be worth noting that my favorite South Korean stock Naver (035420 KS), an ecommerce company, hit an all-time high today. Knock on wood it keeps up the good performance.

I’ve become a fan of flight tracking apps (nerd alert raised to DEFCON 1). I noticed a massive pick up in domestic air travel in China over the extended Labor Day holiday. Post-quarantine, people are evidently ready to roam. I also noticed several Air China flights from Beijing to NYC and LA. In doing some research on China Aviation Review, Air China is flying medical cargo on these flights.

H-Share Update

The Hang Seng opened flat but immediately started to trend up closing up +1.13%/+268 index points at 24,137 as volume jumped 55% from yesterday. Breadth was positive with 43 advancers and just 5 decliners led higher by AIA +2.06%/+49 index points, Tencent +0.99%/+27 index points and today’s best performer Sino Biopharmaceutical +5.53%/+14 index points. China Overseas Land & Investment was the day’s worst performer -1.31%/-4 index points. Hong Kong and China-domiciled companies both returned +1.13% 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 returned +1.33% led by tech +4.58%, discretionary +2.74%, staples +2.15%, energy +2%, industrials +1.79%, utilities +1.75%, health care +1.63%, financials +0.9%, communication +0.84% and real estate +0.56%. Southbound Connect reopened on strong volume though Mainland investors net sellers in mixed trading. Volume leader Tencent saw sell volume outpace buy volume by 2.6 to 1, Semiconductor Manufacturing 1.2 to 1 buyers and China Mobile was sold 2 to 1. Mainland investors bought $235mm worth of Hong Kong stocks today, accounting for nearly 14% of Hong Kong’s turnover.

A-Share Update

Shanghai & Shenzhen opened lower -0.99%/-0.92% but rebounded the remainder of the day +0.63% and +1.53%, respectively. Volume was only moderately higher than last Thursday accompanied by breadth of 2,823 and 839 decliners. Mid and small caps outperformed large caps by a wide margin. The mainland stocks within the MSCI China All Shares +0.24% led by tech +2.29%, health care +1.31%, staples +0.74%, communication +067%, materials +0.66%, discretionary +0.4% and industrials +0.26%. On the downside were utilities -1.27%, financials -1.3%, energy -1.47% and real estate -2.1%. Foreign investors followed the lead of domestic investors with a preference for mid/small/growth companies over large/value companies. Shenzhen Connect had very high volumes with buyers outpacing sellers while Shanghai Connect had high volume but sellers outpaced buyers by a small margin. MSCI inclusion stocks Kweichow Moutai had buyers outpace sellers 7 to 4 while Ping An was sold 3 to 1. Foreign investors bought $160mm of mainland stocks as foreign trading accounted for 7% of mainland turnover.

Last Night’s Prices & Yields

• CNY/USD 7.10 versus 7.06 on 4/30
• CNY/EUR 7.67 versus 7.73 on 4/30
• Yield on 1-Day Government Bond 0.88% versus 0.88% on 4/30
• Yield on 10-Year Government Bond 2.58% versus 2.54% on 4/30
• Yield on 10-Year China Development Bank Bond 2.88% versus 2.87% on 4/30