Daily Posts

“ATMX” Rebounds, Mainland Micro Caps Fall Under Regulatory Scrutiny

We have two webinars coming up in September. You can find the descriptions below.

EM Consumer Technology: Tuesday, September 15th, 11 am EST 
COVID-19: An Inflection Point For Emerging Markets Consumer Technology

China Macro: Thursday, September 17th, 9 am EST
China Macro Economic Outlook: Digital Transformation and Structural Reforms Provide Catalysts for Post COVID-19 Growth

Key News

Asian equities had a mixed day with Indonesia declining -5% following increased social distancing measures to thwart a coronavirus flare up. Hong Kong and Mainland China fell from intra-day gains going into the close following a report that trading in Mainland small caps would come under greater scrutiny after several stocks posted spectacular gains. It is important to recognize that the focus is on small/micro cap companies, which are not included in MSCI indexes. This explains the wide disparity in performance as Mainland large and mid-caps ended today in the green/+0.01% using the Mainland stocks within the MSCI China All Shares Index (a total China benchmark including Mainland, Hong Kong, and US-listed stocks) as a proxy.

The appreciation of the renminbi versus the US dollar over the past few months has helped those of us holding Renminbi-denominated assets. Liquor stocks had a good day in Mainland China with Kweichow Moutai gaining +1.05% and Wuliangye Yibin gaining +2.86% while healthcare rebounded. Foreign investors bought $146mm worth of Mainland stocks today via the Northbound Stock Connect as they bought the dip in growth stocks with strong inflows into Shenzhen-listed stocks. Hong Kong also gave up gains going into the close.

“ATMX” were the volume leaders and mostly recouped losses from yesterday: Tencent rose +0.4%, Meituan Dianping rose +0.43%, and Xiaomi rose. +1.58%. However, Alibaba fell -0.23%. In other tech moves, JD.com HK fell -0.2% while NetEase HK gained +0.98%.

China’s Five Year Plan, the country’s social and economic game plan, will be released next year. The blueprint for the next plan will be set later on this year during policy meetings though chatter overnight indicated that building up strategic reserves in commodities and agriculture products would be a priority.

Yesterday, HSBC set their price target for CNH at 6.70 versus today’s price of 6.82. The catalyst for appreciation is foreign investor interest in China’s bond market. US investors’ home bias is not only in equities. I am surprised there has not been more interest in China’s bond market due to the yields and currency stability. Here are the 10-year government bond yields across several markets versus China. Remember these are Treasury bonds so if we take some credit risk we can get higher yields: 0.71% in the US, -0.43% in Germany, 0.02% in Japan, 0.59% in Canada, and 3.08% in China.

Several brokers have noted that renminbi’s forward price is expecting an increase in volatility going into the US election. However, volatility can mean appreciation as well!

Yum China relisted in Hong Kong today (9987 HK) and fell -5.29% despite being oversubscribed over 50 times. A likely factor in the rare IPO fall was an increase in shares sold to retail investors. The increased supply likely filled potential demand once the stock started trading. The company raised $2.2 billion that will be used to launch 800 to 850 new restaurants this year according to CEO Joey Wat’s interview on Bloomberg TV.

There is some chatter that Ant Group’s Hong Kong and STAR Board IPOs may occur in late October/early November.

Goldman Sachs is expected to buy out its Mainland China securities brokerage, according to a Mainland Chinese media source.

The US sold six apartments used by consulate staff on Hong Kong’s Shouson Hill for $332 million. Wow! It is good to be a top diplomat in Hong Kong. The sale was unrelated to staff changes as the consulate apparently owns additional properties for its staff.

August data for money supply, new loans, financing, and foreign direct investment will be released by end of the week though we don’t yet know the exact timing. The market could use a positive catalyst which the release could provide as economic data has been strong post quarantine.

H-Share Update

The Hang Seng posted modest gains before selling off to close -0.64%/-155 index points at 24,313. Volumes were off -13.9% which is below the 1-year average, while breadth was off with only 10 advancers and 40 decliners. The broader Hang Seng Composite Index was off -0.37% with 159 advancers and 294 decliners. The 204 Chinese companies listed in Hong Kong and within the MSCI China All Shares Index declined  -0.16% with materials +0.95%, staples +0.85%, and discretionary +0.47%, while health care -1.02%, financials -0.94% and energy -0.83%. Southbound Stock Connect volumes were light in mixed trading. Mainland investors bought $163mm worth of Hong Kong stocks today as Southbound Connect trading accounted for 9.6% of Hong Kong turnover.

A-Share Update

Shanghai and Shenzhen gave up gains to correct themselves and close -0.61% and -2.14% at 3,234 and 2,129, respectively. Volumes were off -15%, which is just above the 1-year average while breadth was off with only 676 advancers and 3,071 decliners. Large caps outperformed mid and small caps significantly. The 517 Mainland stocks within the MSCI China All Shares Index were up +0.02% led by real estate +1.26%, staples +1.12% and discretionary +1.06%, while tech -1.15%, communication -0.98%, and industrials -083%. Northbound Stock Connect flows were light/moderate in mixed trading as Shenzhen Connect had foreign buying today.  Foreign investors bought $146mm worth of Mainland stocks today as Northbound Stock Connect trading accounted for 4.8% of Mainland turnover.

Last Night’s Exchange Rates & Yields

  • CNY/USD 6.83 versus 6.83 yesterday
  • CNY/EUR 8.12 versus 8.07 yesterday
  • Yield on 1-Day Government Bond 0.91% versus 1.00% yesterday
  • Yield on 10-Year Government Bond 3.08% versus 3.08% yesterday
  • Yield on 10-Year China Development Bank Bond 3.63% versus 3.63% yesterday