Second Wave Stalls Markets
Asian equities were largely lower overnight due to fears of second waves in the US and globally. Coronavirus cases exceeded 10mm globally while deaths exceeded 500k. Hong Kong and Mainland China returned from their holiday weekend groggy due to a fairly quiet news cycle as outperforming sectors were largely sold off in Hong Kong.
The PBOC announced continued policy support. Meanwhile, brokers were hit as traditional banks will now be allowed to operate investment banks as well. China’s May Industrial Profits jumped into positive territory for the first time this year following declines of -4.3% in April and -34.9% in March. Year to Date profits are off -19% but clawing back.
In Hong Kong, volume leader Tencent rose +0.21% while growth peers were clipped with Alibaba HK -2.42%, Semiconductor Manufacturing -6.99%, Meituan Dianping -1.72%, JD.com HK -1.9%, and NetEase HK -0.74%. Tech took a hit in Hong Kong following a recent rebound. It is worth noting that Southbound Connect volumes were fairly mixed after a period of persistent buying.
On the Mainland, healthcare was the leading sector on reports of another vaccine trial going well. Cases in China appear to be declining though a cluster was found south of Beijing, which led to an increase in travel restrictions. While stocks were sold on light volumes on the Mainland, bonds were bought as we’ve seen yields creep higher in the last few weeks. We had the typical WSJ negative China articles as today’s topics du jour were rare earth metals, European airport x-ray equipment, and Huawei building a research facility in the UK. One US trader always points to how stable the renminbi has been despite the negative headlines.
The Hang Seng slid for most of the day before a late afternoon comeback cut losses and the index closed -1.01%/-248 index points at 24,301. Volume jumped +38% from Friday’s dismal amount but was higher than the 1-year average. Breadth was off with only 6 advancers and 43 decliners. Index heavyweights were off with AIA -2.29%/-58 index points, HSBC -1.77%/-39 index points, and China Mobile -3%/-28 index points. Conglomerate Swire Pacific was the day’s worst performer -4.66%/-2 index points while Techtronic Industries was the day’s best performer +1.19%/+4 index points. Hong Kong-domiciled companies underperformed China-domiciled companies -1.34% and -0.97% using the HS HK 35 and China Enterprise indexes as proxies. The Chinese companies listed in Hong Kong within the MSCI China All Shares Index fell -0.85% with materials +0.11%, communication -0.24%, financials -0.44%, staples -0.52%, healthcare -0.67%, energy -0.92%, real estate -0.99%, industrials -1.02%, discretionary -2.18%, tech -2.43%, and utilities -2.92%.
Southbound Connect volumes were elevated in mixed trading. Tencent was bought 2.5 to 1 while Semiconductor Manufacturing was sold slightly and Meituan Dianping was sold heavily. Mainland investors bought $73mm worth of Hong Kong stocks today as Southbound Connect trading accounted for 12.8% of Hong Kong turnover.
Shanghai and Shenzhen were off all day -0.61% and -0.44% to close at 2,961 and 1,939, respectively. Volumes were light, down -0.93% from last Wednesday while breadth was off 1,183 advancers and 2,533 decliners. Large, mid and small caps were off by about the same margin today. The Mainland stocks within the MSCI China All Shares Index were off -0.59% with healthcare +0.71%, staples +0.46%, discretionary +0.46%, utilities -0.59%, industrials -0.66%, materials -1.12%, financials -1.29%, tech -1.3%, energy -1.33%, communication -1.63%, and real estate -1.63%.
Northbound Connect trading was mixed as Shanghai stocks saws small outflows while Shenzhen stocks saw small inflows. MSCI inclusion stock Kweichow Moutai was sold 2 to 1 on the Shanghai Connect, Ping An was sold 3 to 1, and Jiangsu Hengrui Medicine was bought 5 to 4. East Money Information was bought 5 to 1 on the Shenzhen Connect while liquor stock Wuliangye Yibin was sold 3 to 2. Foreign investors sold -$204mm worth of Mainland stocks today as Northbound Connect trading accounted for 5.7% of Mainland turnover.
Last Night’s Prices & Yields
- CNY/USD 7.08 versus 7.08 Wednesday
- CNY/EUR 7.98 versus 7.98 Wednesday
- Yield on 1-Day Government Bond 0.65% versus 1.18% Wednesday
- Yield on 10-Year Government Bond 2.85% versus 2.86% Wednesday
- Yield on 10-Year Chine Development Bond 3.16% versus 3.23% Wednesday