Key News

If you stare at markets long enough you eventually come across an odd day such as today. Asian equities were largely higher though Hong Kong and Mainland equities had several noteworthy divergences as growth names had a strong comeback.  Shanghai (value) and Shenzhen (growth) diverged with the former down and the latter up. 

Healthcare had a strong day on the Mainland based on yesterday’s news of human trials for a vaccine. Hong Kong volume leaders were the growth names Tencent +2.86%, Meituan Dianping +5.35% and Alibaba HK +1.51%, which lifted the discretionary (BABA and MD) and communication sectors (Tencent). Given that BABA and MD are not in the Hang Seng Index, the market would have done much worse without Tencent’s rise. 

Tomorrow, NetEase’s Hong Kong listing comes to market with the absolutely fabulous ticker 9999 HK. According to SCMP, the offering was oversubscribed 360 times. JD’s Hong Kong listing will wrap up fundraising today. Northbound Connect flows were focused on growth names as Shenzhen Connect saw inflows while Shanghai Connect saw outflows. We also saw yield play China Construction Bank (5.49%) return to Southbound Connect as a top volume stock. 

Did anyone notice how strong China’s currency has been? CNY is on a tear versus the dollar! It is remarkable that no one talks about it. A Mainland media source is reporting that Luckin Coffee chairman Lu Zhengyao will face criminal fraud charges. Good. Meanwhile, the WHO backtracks on yesterday’s claim that the asymptomatic were not contagious. That’s confusing!

Takeaway: The data was released at the market’s open. The CPI is slowly calming down as pork prices slowly come back to earth after China’s pig population was eliminated due to African swine flu. PPI was driven lower by falling raw material prices. Central banks hate inflation or, at least, they are supposed to. With no inflation on the horizon, the PBOC can maintain easy monetary conditions to support the economy.

Takeaway: This data came after the market’s close. Policy support for private companies through credit appears to be working.

H-Share Update

The Hang Seng swung between gains and losses in a choppy session closing -0.03%/-7 index points to close at 25,049. Volume picked up +2% from yesterday/above the 1-year average while breadth was off with 16 advancers and 32 decliners. Today’s best performer was index heavyweight Tencent +2.86%/+71 index points, HSBC -1.49%/-36 index points, and AIA -1.01%/-26 index points. Henderson Land Development was the worst performer -5.4%/-7 index points. Chinese domiciled companies +0.22% while HK domiciled companies -0.59% using the HS China Enterprise and HS HK 35 as proxies. The Chinese companies listed in HK within the MSCI China All Shares gained +0.97% with discretionary +2.84%, communication +2.36%, materials +1.31%, health care +0.25%, financials +0.2%, real estate +0.17%, staples +0.0%, tech -0.08%, industrials -0.51%, utilities -1.01%, and energy -1.09%

Southbound Connect volumes were moderate as Mainland investors were net sellers of Hong Kong stocks by a small margin. Volume leader Tencent had very high volume as buyers outpaced sellers by a small margin. Semiconductor Manufacturing saw buyers outpace sellers by 2 to 1 while CCB had 10 to 1 buyers. Mainland investors bought $127mm worth of Hong Kong stocks today as Southbound Connect accounted for nearly 7% of Hong Kong turnover.

A-Share Update

Shanghai & Shenzhen bounced around the room diverging to close -0.43% and +0.3%, respectively, on volumes that were off -1% from yesterday and just above the 1-year average. Breadth was off with 1,274 advancers and 2,419 decliners. Mid and small caps outperformed large caps. The Mainland stocks within the MSCI China All Shares Index gained +0.44% with healthcare +1.99%, tech +1.03%, staples +0.76%, communication +0.68%, industrials +0.52%, materials +0.4%, discretionary -0.21%, financials -0.41%, utilities -0.44%, energy -0.47%, and real estate -0.81%.

Northbound Connect volume was moderate as Shanghai Connect saw foreign selling while Shenzhen Connect had foreign buying. Kweichow Mutai, BOE Tech, and Gree Electric Appliances saw sellers outpace buyers by small margins. Foreign investors bought $59mm worth of Mainland stocks today as Northbound Connect volumes accounted for 5.5% of Mainland turnover.

Last Night’s Exchange Rates & Yields

• CNY/USD 7.06 versus 7.08 yesterday
• CNY/EUR 8.02 versus 8.04 yesterday
• Yield on 1-Day Government Bond 1.27% versus 1.35% yesterday
• Yield on 10-Year Government Bond 2.82% versus 2.80% yesterday
• Yield on 10-Year China Development Bank Bond 3.14% versus 3.14% yesterday