Daily Posts

Typhoon Higos Shortens Hong Kong Trading as VIPS Releases Q2 Results

Key News

Asian equities were off in a slow summer session as US-China political rhetoric weighed on sentiment regionally. President Trump announced that he called off last weekend’s virtual trade envoy meeting, while the State Department told US academic institutions that they shouldn’t invest in publicly traded Chinese stocks. The former appears to prevent good news from being released as Chinese agriculture purchases have increased, while the latter is simply a reflection of China hawk Pompeo having been given the green light to throw China under the bus going into the election. I’m getting fairly bored of this, but we have to realize that this is kabuki theater, i.e. overly dramatic acting, but no bite.

Typhoon Higos shortened the morning session in Hong Kong along with Connect trading. Growth names dominated the volume leader board with Xiaomi up +3.36%, Tencent down -11.17%, Alibaba Hong Kong up +1.35%, Meituan Dianping down -1.7%, Sunny Optical -6.86% on Huawei restrictions, and JD.com Hong Kong +4.67%, as analysts raise their price targets following strong earnings releases. Hong Kong Exchanges was off -1.42% post-lackluster earnings. Mainland China was hit with a bout of profit-taking as brokers and recent outperformers were clipped, such as the DND trade (drugs and drinks). It was a fairly universal off day as Mainland investors digested the Huawei entity list expansion. 

Did you see US-listed Chinese stocks dip yesterday afternoon following the State Department letter to academic universities? Trading computers are programmed to sell stocks on headlines. But, what did CNY, China’s currency, do on the news? Nothing at all! The seriousness of headlines should be measured not by stocks but by the currency. China’s currency continues to appreciate versus the US dollar. If we act emotionally on these headlines, then we are going to miss out on the inevitable rebounds. 

US and Chinese transportation officials appear to be getting along, as the number of flights between the countries will double to 8 flights per week in September. US flights will leave from San Francisco, Seattle, and Detroit. Those cities are coincidental if you think of the big US companies that are doing big business in China today (Apple, Microsoft, GM).

H-Share Update

The Hang Seng was off -0.74%/-188 index points to close at 25,178 with volumes robust in shortened sessions. Breadth was off with 13 advancers and 34 decliners, led by Tencent down -1.17%, China Construction Bank up +1.02%, and Hong Kong Exchanges down -1.42%. Hong Kong domiciled companies were off -0.23% versus -1.08% using the HS Hong Kong 35 and China Enterprise as proxies. The 205 Chinese companies listed in Hong Kong within the MSCI China All Shares were off -0.93%, led by health care +0.24%, real estate -0.17%, energy -0.56%, financial -0.67%, tech -0.78%, industrials -0.99%, utilities -1.03%, discretionary -1.24%, communication -1.29%, materials -1.63%, and staples -1.8%.

Southbound Connect volumes were off in mixed trading. Shanghai Southbound Connect volume leaders Xiaomi was sold 2 to 1, China Feihe bought 3 to 2, and SMIC bought by a very small margin. Mainland investors sold $121mm of Hong Kong stocks today as Southbound Connect trading accounted for 10.5% of Hong Kong turnover. 

A-Share Update

Shanghai & Shenzhen were off all day, closing -1.24% and -1.95% at 3,408 and 2,253, respectively. Volumes were basically flat from yesterday, which is nearly 50% higher than the 1-year average. Breadth was off with 920 advancers and 2,759 decliners as mid and small caps sold off more than large caps. The 510 Mainland stocks within the MSCI China All Shares were off -1.28%, led by utilities +2.81%, staples +0.13%, materials +0.02%, energy -0.29%, industrials -0.75%, financials -1.34%, real estate -1.36%, communication -2.03%, discretionary -2.33%, health care -2.75%, and tech -2.9%.

Northbound Stock Connect volumes were curtailed due to the shortened Hong Kong session as foreign investors sold Mainland stocks. Shanghai volume leader China Tourism Group was sold 5 to 4, Kweichow Moutai sold 5 to 3, and Ping An Insurance sold 3 to 2. Shenzhen volume leaders Wuliangye Yibin was bought slightly, East Money Information sold slightly, and Luxshare bought not quite 2 to 1. Foreign investors sold -$887mm of Mainland stocks as Northbound Connect trading accounted for 3.3% of Mainland trading.

E-commerce company Vipshop (VIPS US) reported Q2 financial results prior to the US open this morning, beating analyst expectations while cutting expenses, which helped a strong bottom-line beat. The stock has performed very well this year, so it’s good that the results were in line. The Q3 forecast was a touch light, though the company is in the favored e-commerce as China’s online retail sales have rebounded post quarantine. Percentage numbers below are year over year for Q2 2020 versus Q2 2019.

  • Revenues +6% to $3.4B (RMB 24.1B) which exceeded analysts’ estimate of RMB 23.745B
  • Gross Merchandise Value sold +9% to RMB 38.4B
  • Active customers +17% to 38.8mm
  • Total operating expenses decreased to RMB 3.8B from RMB 4.2B
  • Non-GAAP Net Income +24% to $186mm (RMB 1.3B) which beat analyst expectations of RMB 1.271B
  • Adjusted EPS increased to $0.27 (RMB 1.92) from RMB 1.58
  • Q3 Revenue outlook +5% to 10%

Last Night’s Exchange Rates & Yields

  • CNY/USD 6.92 versus 6.92 yesterday
  • CNY/EUR 8.23 versus 8.25 yesterday
  • Yield on 1-Day Government Bond 1.27% versus 1.23% yesterday
  • Yield on 10-Year Government Bond 2.99% versus 2.98% yesterday
  • Yield on 10-Year China Development Bank Bond 3.51% versus 3.47% yesterday