Key News

Asian equities opened lower on failed US stimulus talks though rallied over the course of the day. Hong Kong had a strong day despite growing concerns surrounding increased social distancing measures as growth stocks led the market higher. Hong Kong volume leaders were Alibaba HK, which rose +2.93% after Goldman Sachs raised their price target for the share class, Tencent, which rose +1.42%, Meituan Dianping, which gained +3.8%, biotech firm JHBP CY Holdings, which rose +16.46% after selling $371mm in shares in its IPO, Xiaomi, which rose +1.4%, and Ping An, which fell -0.25%. NetEase HK was off -0.22% on an analyst price target cut. Apple suppliers AAC Technologies gained +3.33% and Sunny Optical gained +5.1% on news of Apple’s product release. It was fairly quiet overnight as China is still on holiday and volumes have been off as a consequence.

It is being reported that over 400 million Chinese are vacationing domestically during the Golden Week holiday. Thus, it is no surprise that consumption plays are performing well this week. How do investors know what’s happening in China? Our mobile phones are a treasure chest of tasty data that is available for a price. Chinese credit/ATM payment processor UnionPay announced that transactions over their network actually increased 15% year over year. Hedge funds will pay to know which restaurants, hotels, airlines, etc. those transactions are taking place in. However, we don’t need that depth of analysis to know that domestic consumption is alive and well in China. Overnight, an analyst downgraded a Chinese retailer as their app downloads were falling relative to online competitors. The same bank had upgraded a certain Chinese online video firm based on increased monthly users. The amount of real-time data available is truly remarkable.

Hedge fund pioneer Ray Dalio of Bridgewater fame (and fortune) was on CNBC Asia last night speaking to the firm’s China investment strategy. It sounded like a core-satellite approach to a core position based on the firm’s risk parity strategy with tactical over-weights. It is interesting that Dalio mentioned India, which offers a tremendous opportunity though its capital markets are “much less developed”. Remember that the MSCI India Index is comprised of 86 stocks with a total market cap of $525 billion versus MSCI China’s 714 stocks and market cap of $2.671 trillion.  

China’s foreign reserves at the end of September were $3.142 trillion versus August’s $3.164 trillion, which represents a +1.6% year over year increase and a -0.7% decrease month over month. Meanwhile, China’s gold position decreased month over month. There was chatter amongst institutional brokers earlier this week that China may increase their allocation to Japanese government bonds. Nikkei noted that China bought $13.8B worth of Japanese government bonds between April and July. What is driving the Japanese bond purchases? The fact that foreign holdings of US Treasuries continue to fall as the Fed is a willing buyer, US interest rates will be staying lower for longer and the US’ growing debt represents a potential risk.

H-Share Update

The Hang Seng opened higher and kept moving higher +1.09%/+262 index points to close at 24,232. Volume increased +6% but is still running below the 1 year average. Breath was strong with  39 advancers and 9 decliners while the broader Hang Seng Composite +0.88% with 227 advancers and 224 decliners. The 204 Chinese companies listed in HK within the MSCI China All Shares +0.88% led by discretionary +2.03%, tech +1.79% and communication +1.39% while staples lagged -0.98% and materials -0.03%. Southbound Stock Connect is closed.

A-Share Update

Shanghai and Shenzhen are closed until Friday for the Golden Week holiday.