Week In Review

• The Wall Street Journal pointed out this Monday that China has steadily increased its purchases of US crude oil since May.
• Bloomberg announced this Tuesday that Singaporean sovereign wealth funds, GIC and Temasek will participate in the Ant Group IPO, with the former reportedly making a $1 billion investment.
• It was reported this Wednesday 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.
• On Thursday, Ping An Insurance-backed company Lufax Holdings filed for a New York Stock Exchange listing under the ticker LU.

Key News

Let’s not bury the lead: THE STRONGEST SINGLE DAY OF PERFORMANCE FOR THE RENMINBI VERSUS THE US DOLLAR IN 15 YEARS! The renminbi (RMB) moved $0.09 versus the USD last night!  You might remember how China “devalued” its currency back in August 2015. Last night's move was almost the same magnitude as 2015, but the other way around! Regardless, back then the headlines SCREAMED about the “devaluation” for weeks. Don't get me wrong, Summer 2015 was awful as China’s Mainland stock market fell and then the currency drop left a Grand Canyon-sized wrinkle in between my eyebrows. However, with such a strong move to the upside, I would have expected at least a few headlines covering the RMB’s historic positive move last night... (For my friends in Europe & UK, the appreciation wasn’t as pronounced versus the Euro or Pound.)

While I have your attention, I will point out the growing disparity between MSCI’s definition of Chinese A-Shares and domestic indices such as the CSI 300. MSCI added mid-cap stocks to its definition of A-Shares in November 2019. My colleagues and I have been pounding the table about how the mid-caps gave MSCI’s A-shares more Shenzhen Stock Exchange exposure than the CSI 300. These mid-cap companies are growth names so less financials, energy, industrials, etc. Year-to-date, the difference between the two indices as of yesterday is almost 5%. Notice how Shenzhen went up 2X the Shanghai last night? The index performance difference (and the ETFs benchmarked to them) should widen quite a bit after today.

Asia closed out a strong week on a high note as the Mainland reopened for the first time since Wednesday, September 30^th, while South Korea and Taiwan were off today on holiday. Every party needs a pooper as the Hang Seng was off a touch, though still managed a strong week. Hong Kong volume leaders were Tencent, which gained +0.84%, Alibaba Hong Kong, which was off -1.17%, Meituan Dianping, which rose +1.2%, Everest Medicine, which gained +32% on its IPO, Xiaomi, which rose +0.48%, and JD.com Hong Kong, which gained +0.92%.

Last night was fairly quiet on the individual stock front. Mainland investors returned from a vacation in a great mood as the market played catch-up to its Asian peers. There was a very broad rally with 3,563 advancing stocks and only 235 decliners. Chinese clean energy/solar stocks continue to rally on China’s pledge to be carbon neutral by 2060. Foreign investors bought $1.6 billion of Mainland stocks today, which raises the year-to-date total to $14.757 billion. I almost fell off my chair when I read that ride-sharing firm Dida Chuxing filed for a Hong Kong IPO. Not to be confused with Didi Chuxing, the privately held 'Uber slayer' in China.

Caixin PMI Services was released last night.

Takeaway: Though a positive release, the market wasn’t overly concerned with it. The data is further evidence that China is experiencing a V-shaped recovery post-quarantine in Q1. The Caixin PMI survey is conducted by IHS Markit.

H-Share Update

The Hang Seng opened higher but eased over the day to -0.31%/-74 index points to close at 24,119. Volume surged up 28% from yesterday while breadth was off on 14 advancers and 30 decliners. The broader Hang Seng Composite was off by -0.31% with 160 advancers and 296 decliners. The 204 Chinese companies listed in Hong Kong within the MSCI China All Shares Index were off -0.03%, led by communication +0.66%, energy +0.47%, and discretionary +0.2%, while industrials were off -1.35%, tech -1.31%, and real estate -0.7%. Southbound Stock Connect reopened on moderate volume as Mainland investors bought $363mm of Hong Kong stocks as Southbound trading accounted for 14.9% of Hong Kong turnover.

A-Share Update

Shanghai & Shenzhen opened higher and stayed there at +1.68% and +3.09% on volume +32% but below the 1-year average. The 517 Chinese stocks within the MSCI China All Shares Index gained +3.74%, led by tech +5.67%, industrials +4.74%, and healthcare +4.5%. Northbound Stock Connect volumes were moderate as foreign investors bought $1.682 billion of Mainland stocks as Northbound trading accounted for 10.5% of Mainland turnover.

Last Night’s Exchange Rates & Yields

• CNY/USD 6.69 versus 6.79  last Wednesday
• CNY/EUR 7.91 versus 7.98 last Wednesday
• Yield on 1-Day Government Bond 1.15% versus 1.86%  last Wednesday
• Yield on 10-Year Government Bond 3.19% versus 3.15% last Wednesday
• Yield on 10-Year China Development Bank Bond 3.76% versus 3.72%  last Wednesday