Daily Posts

September PMIs Highlight V-Shaped Recovery, Last Session Before Golden Week

Key News

Asian markets were mixed overnight on a relatively slow news day. All eyes were on the first of the US presidential debates last night. Although the candidates mentioned China, it became clear that foreign policy issues are mostly going to be left for a later debate. Mainland China markets were mixed as Shenzhen gained while Shanghai slumped somewhat in the last day of trading before the Golden Week holiday.

Hong Kong volume leader Tencent gained +1.19% as investors cheer its decision to take Sogou (SOGO US) private in a $3.5 billion deal. Alibaba HK gained +3.84%. Meanwhile, China Evergrande gained a whopping +19.39% after denying investors’ concerns about its debt servicing issues. The bounce in the company’s stock price was also fueled by the company’s decision to take its property management public through a Hong Kong IPO.

Pfizer took a 9.9% stake in Ctstone Pharma (2616 HK) worth $200mm, which represents a 43% premium over yesterday’s close. Ping An Good Doctor (1833 HK) sold 80mm shares worth $1.1B at a 8.5% discount to yesterday’s close.  

Chinese vacationers will largely not be going abroad this year for their week-long holiday though the stats around domestic travel will be impressive. One Mainland media sourced noted that 15 million may travel by plane, while another 400 million car trips are expected. It’s China so numbers get crazy fast, but that’s absurd if you think about the entire US hopping in cars. Much of the long holiday will be spent domestically, which should give October retail sales a pop.

The highlight from the last day of Alibaba’s investor day was the announcement that its cloud business will be profitable next year.

As China and Hong Kong will be closed on Thursday and Friday, we will take a breather and publish the note again on Monday.

Today marks the close of a decent quarter for Asian equities. Don’t feel bad if you missed Pakistan’s great quarter as you are in good company!

Takeaway: The “official” PMI survey is conducted by the National Bureau of Statistics and consists of a large number of participants predominantly from large companies. This is in contrast to the Caixin or “private” survey conducted by IHS Markit of a smaller number of smaller, private (i.e. non state-owned) companies. The PMIs were released at 9:06am local time before the market’s open. Remember that PMIs are a diffusion index measuring month over month changes with above 50 indicating growth and below 50 indicating contraction. The Manufacturing PMI saw a nice pick up in output and new orders as new export orders turned positive for the first time this year. Meanwhile, imports increased while inventories continue to shrink. The non-manufacturing PMI also saw new orders pick up, though export orders shrank less in September, coming in at 49.1 versus August’s 45.1 This was the last trading day before China’s holiday so we shouldn’t overthink the market’s pullback at the close. You know who did notice the positive release? Commodity prices! Base metal prices rose on the Shanghai and Dalian Futures Exchange. Yes, copper was off a touch, but iron ore gained +2.79%, coal gained +0.55%, aluminum was flat, coil steel gained +0.93%, lead gained +0.2%, rebar gained +0.94%, wire gained +0.13% etc. The renminbi also appreciated versus the US dollar in another sign that China’s V-shaped recovery is being noticed.

H-Share Update

The Hang Seng gained +0.79%/184 index points overnight to close at 23,459. Breadth was positive with 37 advancers and 10 decliners.

A-Share Update

Shanghai and Shenzhen diverged as Shanghai gave up early gains and fell -0.20%/-6.31 index points and Shenzhen gained +0.05%/+6.75 index points to close at 3,281 and 12,907, respectively.  Breadth was off with 674 advancers and 1,235 decliners.

Last Night’s Exchange Rates & Yields

  • CNY/USD 6.81 versus 6.82 yesterday
  • CNY/EUR 7.97 versus 8.00 yesterday
  • Yield on 1-Day Government Bond 1.86% versus 0.76% yesterday
  • Yield on 10-Year Government Bond 3.15% versus 3.13% yesterday
  • Yield on 10-Year China Development Bank Bond 3.72% versus 3.71% yesterday