Asian equities were largely higher with only Malaysia and Japan in the red. Hong Kong and Mainland markets both had strong days on news over the weekend from the Ministry of Commerce that Phase One was nearing completion. While the media continues to state that a broader deal will be hung up on intellectual property issues, I am far more optimistic, especially after reading that China accounted for 48% of all global patents. The big driver of tech stocks in China, Hong Kong and broader Asia was President Xi’s comment that blockchain technologies should be utilized. This led to a surge blockchain-related stocks, but lifted tech broadly and prompted a Bitcoin surge, with futures rising by more than 25% over the weekend. There continues to be chatter that China will launch a digital currency. China’s 4th Plenary Session runs through Thursday as policy makers focus on domestic polices including the state of the economy.
Meituan Dianping (3690 HK) and Xiaomi (1810 HK) were added to Southbound Connect trading today, leading to gains of +3.48% and +1.43% as volumes surged 57% and 207% respectively. Lu Lei, deputy head of the State Administration of Foreign Exchange, said foreign investors were welcome to invest in China’s new STAR board. MSCI noted that it would include STAR board names to their indices, though such a move would require a Stock Connect inclusion. Today, only QFII and RQFII quota programs would allow access
The Hang Seng gained +0.84%/+223 index point to close 26,891 as volumes surged +20% versus Friday though below the 1-year average. Breath was strong with 42 advancers and 5 decliners as index heavyweights AIA +3.68%/+97.2 index points was the day’s best performer on earnings that met expectations, HSBC -2.27%/-61.3 index points on disappointing earnings, and Tencent +1.71%/+42.8 index points. Sino Land Holdings was the day’s worst performer -3.71%/-4.1 index points. The 204 Hong Kong stocks within the MSCI China All Shares gained +1.1% led higher by discretionary +2.46%, healthcare +1.92%, tech +1.52%, communications +1.41%, staples +1.36% and financials +0.87%. Only utilities and materials were down on the day off -0.24% and -0.2%. Southbound Connect volumes were high with buyers outpacing sellers by a large margin. Meituan Dianping was the volume leader on Shanghai Connect Southbound with buying volume worth HK $1.2 billion versus selling volume worth HK $10mm. Xiaomi had buying volume of HKD 331mm and selling volume worth HKD 25mm. Tencent had nearly 4 to 1 buyers to sellers, while CCB was sold 2 to 1.
The Shanghai & Shenzhen gained +0.85% and +1.58% on strong volumes +28% from Friday and above the 1-year average. Breadth was very strong with 2,951 advancers and 629 decliners as small caps and mid-caps outperformed large caps by 1%. The market cap disparity was driven by the tech rally as the 466 mainland stocks within the MSCI China All Shares gained 1% led by tech +3.39%, communication +2.62%, healthcare care +1.54%, discretionary 1.22%, materials +1.11%, staples +1.03% and industrials +0.89%. Real estate was off -0.89% and utilities -0.06%. Northbound Stock Connect volumes were strong with net buyers. Shenzhen Connect volume exceeded Shanghai’s, though both experienced strong buying. Foreign investors bought $402mm of mainland stocks today.
Alibaba announced that Taylor Swift will be performing at their annual Singles Day sales event being held at the Mercedes Benz Arena in Shanghai. I may have gotten a small amount of street cred with my kids this morning. Likely small and fleeting….
September Industrial Profits
Industrial Profits (Year over Year): -5.3% versus August’s -2%
Takeaway: Neither a surprise nor a market mover as US tariffs are still exacting their toll on export-focused manufacturers.
Last Night’s Prices & Yields
· Euro/CNY 7.84 versus 7.85 Friday
· USD/CNY 7.06 versus 7.07 Friday
· Yield on 1-Day Government Bond 1.68% versus 1.71% Friday
· Yield on 10-Year Government Bond 3.27% versus 3.25% Friday
· Yield on 10-Year China Development Bank Bond 3.83% versus 3.80% Friday
· Commodities were higher on the Shanghai & Dalian Exchanges with Dr. Copper +0.25%