Asian equity markets were largely higher as President Trump had positive comments on trade negotiations. It was a fairly quiet night outside of the President’s comments as China industrial profits were off which dampened sentiment in the news vacuum.
Alibaba’s US stock jumped yesterday +2.2% and volumes were up 170%. Because Alibaba sold its Alibaba shares in the open market, it increased Alibaba’s free-float market cap leading to a slight upward adjustment of Alibaba’s weight in MSCI indexes. Alibaba volume jumped from 19mm shares Monday to 51mm yesterday primarily driven by a 20mm trade! That is the power of passive on full display. The good news continues as Hang Seng announced that Alibaba’s Hong Kong listing (9988 HK) qualifies for fast track inclusion. In order to qualify for Southbound Connect, Hong Kong stocks need to be in Hang Seng. Meituan Dianping has seen nearly $1 billion in inflows since its inclusion in the Southbound Connect. I expect 9988 Hong Kong to exceed that number though we don’t know exactly when 9988 Hong Kong will be added. Mid-December is a good bet. As recently deceased Ric Ocasek of the Cars eloquently sang “Let the good times roll!”.
Industrial Profits: -9.9% versus September’s -5.3%
Takeaway: This data piece isn’t widely followed as evidenced by the lack of economists who submit an estimate. Literally no economist submits an estimate. The trade wars are hurting industrial companies though it wasn’t all bad as private enterprises recorded a profit increase of +5.3% while large companies were off only -2.9%. SOEs were a major drag as their profits fell -12% though we estimate private companies account for over half of China’s GDP today.
The Hang Seng grinded to a +0.15%/+40 index points to close at 26,954 as volume plummeted 43% from yesterday’s MSCI rebalance and BABA Hong Kong IPO. Breadth was moderate with 27 advancers and 19 decliners as AIA +0.57%/+15.4 index points, Sino Biopharma was the day’s worst performer after releasing disappointing earnings -4.64%/-10.4 index points and Hong Kong subway company MTR Corp was the best performer +3.81%/+8 index points. The Hong Kong stocks within the MSCI China All Shares pulled a James Bond +0.07% led higher by staples +0.64%, tech +0.63%, real estate +0.39%, materials +0.26%, financials +0.22%, energy +0.16%, discretionary +0.09% and utilities +0.01%. Industrials, healthcare and communication were off -0.33%, -0.28% and -0.21%. Southbound Connect volumes were moderate/light in mixed trading. Volume leaders Meituan Dianping had 10 to 1 buying, Tencent sold 3 to 1 and CCB bought 10 to 1. Southbound Connect volume accounted for 6% of Hong Kong turnover.
Shanghai & Shenzhen bounced around to close -0.13% and -0.23% as volumes fell -9% from yesterday while breadth was off 1,413 advancers and 2,106 decliners. SH and SZ are sitting at 2,903 and 1,602 which the market will watch as support levels. The market decline was fairly universal with large, mid and small caps trading in line. The Mainland stocks within the MSCI China All Shares declined -0.15% though tech jumped +0.95% and materials +0.2%. though communications was off -0.95%, discretionary -0.78%, healthcare -0.64%, industrials -0.54%, utilities -0.52%, real estate -0.49%, energy -0.32%, financials -0.08% and staples -0.04%. Northbound Connect volumes were moderate though well off yesterday’s record volumes and inflows. Shenzhen volume and buying exceeded Shanghai’s as foreign investors continue their interest in mid-cap stocks. Foreign investors accounted for 5% of Mainland volumes versus nearly 16% yesterday driven by MSCI’s rebalance. Foreign investors bought $344mm of Mainland stocks following yesterday’s record $3 billion.
A Mainland news sourced noted that carbon dioxide emissions declined 4% last year adding to a drop of 46% since 2005.
Another Mainland source said that Q3 mobile payments totaled $87 trillion. Wow!
Last Night’s Price & Yields
- USD/CNY 7.0266 versus 7.0402 Yesterday
- CNY/EUR 7.7352 versus 7.7564 Yesterday
- Yield on 1-Day Government Bond 1.80% versus 1.89% Yesterday
- Yield on 10-Year Government Bond 3.1425% versus 3.1517% Yesterday
- Yield on 10-Year China Development Bank Bond 3.7425% versus 3.745% Yesterday
- Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper +0.38%