Key News

Asian equities had a good day as investors cheered the lack of actionable items coming out of US-China political rhetoric. However, lingering concerns capped gains today. Hong Kong-domiciled companies rebounded strongly as companies geared to the local economy outperformed. The value momentum weighed on volume leaders Tencent +0.33%, Meituan Dianping -1.93%, and Alibaba HK -1.38% as HK Exchanges 1.84%, Ping An +1.29% and AIA +3.18%.

Hong Kong real estate names had a strong day as Hong Kong’s special trading status has yet to be revoked. Mainland China posted modest gains as the lingering overhang of US-China political rhetoric weighed on sentiment. Value names outperformed growth names on the Mainland as well. News that Hainan Island, the “Hawaii” of China, would be designated as a free trade zone lifted local companies. Autos performed well as policy support and a three-year bottom in sales may have been priced in. All in all, it was a fairly quiet trading day.

NetEase’s Hong Kong listing appears to be moving along well as several brokers reported the offering is oversubscribed. One broker reported that Pinduoduo is in the process of filing for a Hong Kong listing joining JD.com, Baidu, Trip.com (the old C-Trip.com) with more to follow. The relisting has nothing to do with the PCAOB/Senate bill, but with valuation. Asian investors give their Hong Kong-listed peers a higher valuation than US investors. They also don’t trade them based on trade tweets or political rhetoric. Is US investors’ home bias a signal of a US equity top? It is difficult to say though capital flows to where it is treated best.

Baozun (BZUN US) reported Q1 results prior to the US market open today. Baozun is an interesting company. It assists Western companies selling to Chinese consumers. How do we hire a KOL (Key Opinion Leader) for our online ads? How do we set up WeChat and Weibo accounts? Let Baozun do it for you! The company delivered on topline growth, but expenses grew and thereby hurt the bottom line. Investors will like the stronger Q2 revenue forecast.

• Revenues grew +18.4% YoY to $215mm (1.523B)
• Gross Merchandise Value (GMV) +10.4% to RMB 782mm
• Total Operating Expenses increased to $213mm (RMB 1.510B) from RMB 1.240B YoY
• Net Income plunged to $0.3mm (RMB 2.2mm) from RMB 34mm YoY
• Q2 Revenue Forecast +20% to +23%

H-Share Update

The Hang Seng rallied right up until it hit the 24k level to close +1.11%/+263 index points at 23,995. Volume continues to recede following Friday’s MSCI rebalance trade, falling -24% from yesterday. Breadth was strong with 39 advancers and 8 decliners led by AIA +3.18%/+75 index points, HSBC +1.64%+30 index points, and today’s best performer Link REIT +6.44%/+26 index points. China Unicom was off -2.26%/-1 index point as the day’s worst performer. Hong Kong-domiciled stocks outperformed China-domiciled stocks +1.73% versus +0.43% 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 +0.56% led by health care +1.81%, real estate +1.64%, tech +1.08%, industrials +0.84%, staples +0.73%, financials +0.7%, energy +0.46%, discretionary +0.19%, communication +0.09%, utilities -0.35%, and materials -0.67%.

Southbound Connect volume was light in mixed trading. Volume leader Semiconductor Manufacturing was bought almost 2 to 1, Meituan Dianping was sold 6 to 1, and Tencent was bought 2 to 1. Mainland investors bought $57mm worth of Hong Kong stocks today as Southbound Connect accounted for just over 6% of Hong Kong turnover. 

A-Share Update

Shanghai & Shenzhen were both +0.2% closing at 2,921 and 1,846 on volume that was +1% higher from yesterday and above the 1-year average. Breadth was positive with 2,382 advancers and 1,229 decliners as large caps outperformed mid and small caps. The Mainland stocks within the MSCI China All Shares Index rose +0.45% led higher by real estate +2.49%, utilities +1.14%, tech +1.14%, financials +1.05%, energy +0.95%, industrials +0.51%, discretionary +0.31%, materials +0.28%, staples -0.32%, communication -0.96%, healthcare -1%.

Northbound Connect volume was moderate as Shenzhen Connect saw outflows today while Shanghai Connect saw inflows. Volume leader Ping An Insurance saw buyers outpace sellers by 3 to 1, Kweichow Moutai saw sellers outpace buyers by 3 to 2, liquor company Wuliangye Yibin saw sellers outpace buyers by 3 to 1, and Gree sold off slightly. Foreign investors bought a total of $271mm worth of Mainland stocks today as Northbound Connect trading accounted for just over 5% of Mainland turnover.

Last Night's Prices & Yields

• CNY/USD 7.10 versus 7.13 yesterday
• CNY/EUR 7.95 versus 7.93 yesterday
• Yield on 1-Day Government Bond 0.85% versus 0.95% yesterday
• Yield on 10-Year Government Bond 2.79% versus 2.73% yesterday
• Yield on 10-Year China Development Bank Bond 3.1% versus 3.02% yesterday