Key News

Asian equities were mixed on light volumes in what some might call a victory considering the strong US sell-off, realization that there will be no further stimulus pre-election, and increased global coronavirus cases. The Hang Seng Index returned from the three-day weekend off -0.53%/-131 index points as investors are likely to raise cash to fund their Ant Group IPO purchases. The market would have done far worse without Tencent, which rose +4.19%/+114 index points on news that the Ninth Circuit Court of Appeals rejected the Justice Department’s WeChat ban, and HSBC earnings, which were a disaster Year-over-Year but not as horrific as some anticipated. Tencent’s investment in gaming company Krafton could pay off as the South Korean company famous for its PUBG (Player Underground Battleground) could go public next year.

Hong Kong volume leaders in addition to leader Tencent was Alibaba Hong Kong, which rose +0.67%, Meituan Dianping, which gained +1.37%, Xiaomi, which fell -3.43%, Ping An, which was off -1.91%, China Construction Bank, which was off -3.28%, and AIA, which fell -2.24%. I’m surprised that Alibaba Hong Kong didn’t do better, since Ant Group announced they would close their books tomorrow for next Thursday’s IPO. Sell-side analysts are beginning to model the company’s value and think about what the right P/E is, driving Ant’s market cap valuation above +$300B.

Healthcare stocks in Hong Kong and the Mainland did well on the unfortunate reality of increased coronavirus cases globally. Mainland markets were led by growth names, mid/small caps, and health care as Shenzhen rose +0.54% versus value-focused Shanghai, which rose +0.1%. Kweichow Moutai was off another -1.1% post-earnings, though sell-side analysts believe that the Q4 earnings should pick up. September Industrial profits gained +10.1% Year-over-Year versus August’s +19.1%, though the strong release wasn’t a market mover. Foreign investors continue to sell Mainland stocks via the Stock Connect program for the eighth trading day in a row. Not sure of the rationale, but foreign in/outflows have not been a good predictor for the market. CNY stabilized today after depreciating yesterday versus the USD.

There is chatter that Baidu (BIDU US) is buying JOYY Inc’s (YY US) China video and live streaming platform. YY’s stock has been strong on the rumors.

The USDA and US Trade Representative reported yesterday that China has fulfilled 50 of the 57 agricultural commitments from the Phase One trade deal as reported by Food Manufacturing. Corn, soybean, sorghum, poultry, pork, and beef sales and exports have seen a marked uptick in purchases versus 2017 levels, which is the comparison level in the deal. In reading the USDA and USTR release, China has purchased $23.6B of US agricultural products year-to-date, though the deal didn’t go effective until March. Separately, September data showed that China's purchases of US crude oil were a record high according to Bloomberg.

H-Share Update

The Hang Seng bounced around the room to close off -0.53%/-131 index points to close at 24,787. Volume rose +16.9% back above the 1-year average, though breadth was off with 12 advancers and 38 decliners. The broader Hang Seng Composite was off -0.3% with 116 advancers and 344 decliners. The 204 Chinese companies listed in Hong Kong within the MSCI China All Shares Index gained +0.25%, led by communication +3.54%, discretionary +0.65%, health care +0.61%, and staples +0.24%. Laggards were real estate -2.92%, financials -2.87%, energy -2.38%, industrials -1.92%, and materials -0.73%. Southbound Connect volumes were moderate as Mainland investors bought $860mm of Hong Kong stocks today as Southbound Connect trading accounted for 12.5% of Hong Kong turnover.

A-Share Update

Shanghai & Shenzhen rallied into the close up +0.1% and +0.54% to close at 3,254 and 2,223, respectively. Volume was off -0.8%, which is still below the 1-year average, while breadth was off with 1,548 advancers and 2,114 decliners. The Mainland stocks within the MSCI China All Shares Index were up +0.25%, led by health care +2.02%, materials +0.76%, and tech +0.57%, while real estate was off -1.46%, energy -0.6%, and communication -0.49%. Northbound Stock Connect volumes were moderate as foreign investors sold -$691mm of Mainland stocks today as Northbound Connect trading accounted for 8% of Mainland turnover.

Last Night’s Exchange Rates, Prices, & Yields

• CNY/USD  6.88 versus 6.63 yesterday
• CNY/EUR 7.94 versus 7.93 yesterday 
• Yield on 1-Day Government Bond 1.70% versus 1.25% yesterday
• Yield on 10-Year Government Bond  3.16% versus 3.19% yesterday
• Yield on 10-Year China Development Bank Bond 3.71% versus 3.75% yesterday