Daily Posts

China’s Services PMI Shows Fastest Rate of Expansion in 10 Years

Key News

Asian equities finished a strong performance week with an exclamation point. Hong Kong rose +0.99% on strong volumes led by growth stocks Tencent +1.16%, Semiconductor Manufacturing +5.22%, Alibaba HK +2.99%, and Meituan Dianping +6.86%. Geely Auto jumped +12.56% on an analyst upgrade driven by the opinion that China car sales have troughed. A Mainland broker mentioned that Geely Auto may relist on the STAR Board, which is likely what drove the strong performance. While growth stocks lead the way in Hong Kong, this week was a value comeback as the Shanghai outperformed Shenzhen for the third day in a row and for the week for the first time in quite a while. Financials’ outperformance was driven by brokerages.

Caixin employs IHS Markit to conduct its survey of 500 private companies. On the other hand, the “official” PMI, which is conducted by the National Bureau of Statistics, surveys 3,000 large companies. As a diffusion index, readings above 50 are indicate a month over month expansion while readings below 50 indicate a contraction. Now you are properly armed to amaze family and friends over the three-day weekend with your diffusion index knowledge. Following in the footsteps of the Manufacturing PMI for June, the Services PMI notched its highest reading in a decade. New orders including export orders grew as China’s economy rebounds post COVID-19. Like the Manufacturing PMI, an area of concern was a contraction in employment for the fifth month in a row. All in all, it was a rock solid release overnight.

There were rumors that CITIC and CSC, two big brokers, are going to pursue a merger. Although the rumor has been denied by both companies, their stocks were limit up +10%. The PBOC decision to cut refinancing rates is helping financials and real estate companies. Foreign investors bought another $1.867B worth of Mainland stocks today following yesterday’s $2.422B.

Bloomberg has an excellent article on Chinese pharma company CanSino titled “How a Chinese Firm Jumped to the Front of the Virus Vaccine Race”. It is a worthwhile read!

H-Share Update

The Hang Seng opened higher and rose throughout the session to close +0.99%/+248 index points at 25,373. Volume was off -6% from yesterday but was well above the 1-year average. Breadth was strong with 38 advancers and 10 decliners led by Tencent +1.16%, today’s best performer Geely Auto +12.56%/+31 index points, and Ping An Insurance +1.44%/+21 index points. Hong Kong Exchanges was the worst performer -1.31%/-16 index points. China-domiciled companies outperformed Hong Kong-domiciled companies +1.85% versus +0.27% using the HS China Enterprise and HK 35 indices as proxies. The Chinese companies listed in Hong Kong within the MSCI China All Shares Index gained +2.15% led by discretionary +5.69%, tech +4.36%, real estate +2.6%, financials +2.04%, utilities +1.97%, healthcare +1.4%, energy +1.38%, materials +1.15%, communication +1.15%, staples +1.02%, and industrials +0.93%.

Southbound Connect, the trading venue used by Mainland investors to buy stocks in Hong Kong, saw strong volumes as Mainland investors were net buyers of Hong Kong stocks. Volume leader Semiconductor Manufacturing was sold slightly while Tencent was slightly bought. Mainland investors bought $440mm worth of Hong Kong stocks as Southbound Connect trading accounted for nearly 12% of Hong Kong turnover.

A-Share Update

Shanghai and Shenzhen opened higher and rose throughout the day to close +2.01% and +1.28% at 3,152 and 2,041, respectively. Volume increased +8% to nearly 2X the 1-year average while breadth was impressive with 2,625 advancers and 1,062 decliners. Large caps outperformed once again. The mainland stocks within the MSCI China All Shares Index rose +1.77% with financials +4.5%, discretionary +3.71%, energy +3.11%, heath care +1.57%, industrials +1.28%, materials +1.14%, communication +0.67%, tech +0.67%, real estate +0.56%, utilities+0.48%, and staples -0.26%.

Northbound Stock Connect volumes were very strong as foreign investors were very active buyers of Mainland stocks. Shenzhen volume leaders Wuliangye Yibin and Gree Electric Appliances were net sells by a small margin. Shanghai saw Kweichow Moutai being slightly bought while Ping An was bought 2 to 1 and China Merchants Bank was bought 3 to 1. Foreign investors bought $1.867B worth of Mainland stocks today as Northbound Connect trading accounted for nearly 6% of Mainland turnover. For the week, that brings the total to $4.085B despite Northbound Connect being closed both Tuesday and Wednesday.  

Last Night’s Prices & Yields

  • CNY/USD 7.07 versus 7.07 yesterday
  • CNY/EUR 7.94 versus 7.94 yesterday
  • Yield on 1-Day Government Bond 1.02% versus 1.11% yesterday
  • Yield on 10-Year Government Bond 2.90% versus 2.86% yesterday
  • Yield on 10-Year China Development Bank Bond 3.18% versus 3.13% yesterday