Loose Lips Sink Stocks, Tencent Undervalued
This morning we hosted a webninar on the reopening of China’s economy and investing after COVID-19.
Please click here to view the replay!
Asian equities were off following Fed Chair Jerome Powell’s comments regarding the need for more fiscal support, US health officials voicing concern on quarantines being lifted, and rising US-China political rhetoric. The White House extended a ban on US telecom companies’ purchases from Huawei and ZTE. One would hope politicians would wake up to markets telling them they are going the wrong way.
Hong Kong ended the session lower despite great results from Tencent (700 HK), which grew revenue +26% and net profit +29%. There are only two companies globally with market caps of over $300B that grew revenue more than 25% in the latest quarter: Tencent and Amazon. Tencent opened +3.35% but slid to close +0.23% as the market dragged it down. It is worth noting that Tencent traded more than 3X the second most traded stock Seminconducting Manufacturing, +9.66% on strong earnings. The third most traded stock in Hong Kong Meituan Dianping gained another +2.88% as investors catch on to the Hang Seng Index inclusion announcement Monday.
The Mainland had a lackluster day as the PBOC refrained from replenishing the Medium-term Lending Facility (MLF) after last month’s healthy injection. There is speculation they will allow the latest cut to trickle into the real economy. Some brokers speculate that markets may stabilize in advance of next week’s “Two Sessions” policy meetings.
For China watchers, one of the annual must-reads comes from the China Internet Network Information Center (CNNIC). The center provides an overview of internet usage in China. In 2019, the number of internet users jumped by 75mm to 900mm, rising 4.9% to reach a penetration rate of 64.5%. Similarly, the number of online shoppers increased by 100mm to 710mm. Online retail sales totaled $1.5 trillion versus $601 billion in the US, according to the US Census. $1.2 trillion of those online sales involved physical goods, meaning 20% of all retail goods were sold online versus 11% here in the US. While the numbers from 2019 are impressive, this year’s report will likely find that a drastic increase occurred in 1H 2020 due to quarantines.
MSCI reported after the US close that Tongcheng-Elong Holdings (780 HK) will be added to MSCI indices. The Hong Kong-listed online travel company jumped +6.82% on volume that was +45% higher than yesterday on the news.
JD.com will report before the US open on Friday. After hearing from Tencent on how gaming benefitted during quarantine, it will be interesting to get a new look at how E-Commerce fared as well.
The Hang Seng opened lower and declined from there closing -1.45%/-350 index points at 23,829 as volume picked up 14% from yesterday. Breadth was awful with only 3 advancers and 47 decliners as index heavyweights AIA -2.04%/-47 index points, HSBC -1.8%/-33 index points and China Construction Bank -0.98%/-19 index points. CK infrastructure was the best performer +1.51%/+1 index point while Shenzhou International was off -4.64%/-10 index points.The market sell off didn’t discriminate with HK and Chinese domiciled stocks off -1.62% and -1.51% using the HS HK 35 and HS China Enterprise as proxies. The Chinese companies listed in HK within the MSCI China All Shares were off -0.92% with tech managing a gain of +0.94%, communication -0.05%, utilities -0.64%, health care -0.74%, staples -1.17%, discretionary -1.26%, financials -1.43%, industrials -1.86%, real estate -2%, energy -2.17% and materials –2.46%. Southbound Connect trading was moderate as mainland investors were buyers of HK stocks. Volume leader Semiconductor Manufacturing saw slight buying while Tencent was sold slightly. China Feihe was bought in size. Mainland investors bought $525mm of HK stocks accounting offor over 9% of HK turnover.
Shanghai and Shenzhen closed on the day’s lows off -0.96% and -0.94% on volumes +4.6% higher from yesterday though barely above the 1 year average. Breadth was poor with 985 advancers and 2,694 decliners as large, mid and small caps were sold uniformly. The mainland stocks within the MSCI China All Shares were off -1.15$ led lower by utilities -0.53%, communication -0.56%, healthcare -0.58%, tech -0.98%, staples -1.15%, industrials -1.23%, energy -1.27%, financials -1.32%, discretionary -1.4%, materials -1.44% and real estate -1.6%. Northbound Connect volumes were light/moderate as Shanghai Connect had net selling while the Shenzhen Connect had net buying. Foreign investors sold -$186mm of mainland stocks today as Northbound Connect trading accounted for less than 5% of mainland turnover.
Last Night’s Prices & Yields
- CNY/USD 7.09 versus 7.09 yesterday
- CNY/EUR 7.67 versus 7.69 yesterday
- Yield on 1-Day Government Bond 0.70% versus 0.68% yesterday
- Yield on 10-Year Government Bond 2.70% versus 2.71% yesterday
- Yield one 10-Year China Development Bank Bond 3.00% versus 3.03% yesterday