China Equities Start The Week in the Green
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Asian equity markets had a nice start to the week except for Japan, which is on holiday. Markets appear to be balancing rising coronavirus cases globally against the backdrop of vaccine progress. The Hang Seng Index managed a small gain of +0.13% though it was an interesting day from a sector dispersion perspective. Hong Kong’s volume leaders were Tencent, which fell -0.34%, Alibaba HK, which rose +4.35% after Chairman David Zhang praised the new anti-monopoly rules, Xiaomi, which gained a whopping +8.02%, Meituan, which rose +1.25%, BYD, which rose +8.6% on policy support for the sector, and AIA, which fell -2.79%. JD.com HK rose +2.56% as its JD Health spin off appears inching closer to a Hong Kong listing. Interestingly, health care was off despite increasing cases in Hong Kong as stricter social distances measures could be on their way.
Shanghai and Shenzhen gained +1.09% and +0.54%, respectively, as Vice Premier Liu He provided supportive comments about recent turbulence in the bond market after several defaults. Recently defaulted debt is in the $6 billion range, which, within the $13 trillion onshore bond market, is only a drop in the bucket.
Energy stocks have been led higher of late by clean energy names as China seeks to reach peak carbon output in 2030 and become carbon neutral by 2050. Reopening stocks including airlines were off on news of a new coronavirus case at Shanghai’s airport and the postponement of the Hong Kong-Singapore travel bubble. Foreign investors bought a healthy $1.5 billion worth of Mainland stocks today.
After the close on Friday, MSCI released that they will have a consultation regarding the Executive Order on 31 Chinese companies and has asked for input from market participants by December 4th, which comes after FTSE’s announcement to the same effect last week. Without a court challenge, the index providers will most likely drop the companies from the index. The current administration may push China policies in the coming weeks to make its successor’s job more difficult. The fun could include the expansion of tech export bans and requiring US-listed Chinese companies to provide their audit books to the PCAOB. On Friday, the CSRC, China’s version of the SEC, reached out to the PCAOB with an olive branch. As Reuters wrote “For Washington’s part, the threat to wipe companies with a market capitalization of some $2 trillion off American boards, per Refinitiv data, would do more harm than good.” I do not think anybody believes these companies will actually be delisted though playing chicken with investors’ capital seems dangerous.
Baozun (BZUN US) is an interesting company that helps foreign brands navigate China’s E-Commerce market. The company released Q3 results prior to the US market open. The company added 10 brands in Q3, raising the total to 37 year to date. Interestingly, the company said that due to its recent Hong Kong listing, it isn’t allowed to provide Q4 guidance.
- Revenues +21.7% to $269mm (RMB 1.829B) versus estimate of RMB 1.793B
- Gross Merchandise Value sold +19.4% to RMB 10.847B
- Adjusted Net Income $13.5mm (RMB 91.5mm) versus estimate RMB 83mm
- Adjusted EPS $0.22 (RMB 1.52) versus estimate RMB 1.24
The Hang Seng opened higher then fell into the red before rallying to close +0.13%/+34 index points at 26,486. Volume jumped +14% from Friday, which is 125% of the 1-year average while breadth was off with 18 advancers and 31 decliners. The 204 Chinese stocks listed in Hong Kong and within the MSCI China All Shares Index gained +0.58% led by utilities +4%, energy +3.73%, tech +3.42%, materials +3.40%, and discretionary +1.17%. Meanwhile, real estate -1.39% and health care -1.24%. Southbound Stock Connect trading volumes were moderate as Mainland investors were net buyers of Hong Kong stocks.
Shanghai and Shenzhen had a strong start to the week gaining +1.09% and +0.54% to close at 3,414 and 2,301, respectively. Volume jumped +27% from Friday, which places it at 117% of the 1-year average. The 518 Mainland stocks within the MSCI China All Shares Index gained +1.06% led by energy +3.96%, financials +1.97%, materials +1.62%, discretionary and staples +1.32%, and industrials +1.26%. Communication and tech were off -0.47% and -0.27%, respectively. Northbound Stock Connect volumes were moderate as foreign investors buyers of $1.53 billion worth of Mainland stocks today.
Last Night’s Exchange Rates, Prices, & Yields
- CNY/USD 6.57 versus 6.56 Friday
- CNY/EUR 7.82 versus 7.79 Friday
- Yield on 1-Day Government Bond 1.34% versus 1.40% Friday
- Yield on 10-Year Government Bond 3.27% versus 3.31% Friday
- Yield on 10-Year China Development Bond 3.74% versus 3.77% Friday
- China’s copper price +1.90%