Asian equity markets were mixed with Mainland China, Taiwan, Australia and Indonesia gaining, while Japan, Hong Kong, India, Singapore, Malaysia and Thailand were all off. Mainland investors cheered the strong economic data release and Phase One trade deal as tech and growth sectors outperformed. The Shenzhen broke through a small resistance level at 1,660 as momentum in mid and small caps continues. Hong Kong experienced short-term profit taking after Friday’s massive move. Hong Kong’s poor sentiment was driven by headwinds including Hong Kong leader Carrie Lam’s receiving of support from Beijing, several small but violent protests, and Beijing’s focus on diversifying Macau’s economy.
One potential catalyst we are apt to experience are upward revisions to China’s 2020 economic and corporate earnings forecasts from Wall Street firms. The Phase One deal may require a slight modification of one’s outlook from both a top-down China economy level and bottom-up company earnings level. There has been a positive change in the tone of several brokers.
November Economic Data
(Year over Year)
Fixed Asset Investment
5.2% versus estimate 5.2% and Oct’s 5.2%
6.2% versus estimate 5% and Oct’s 4.7%
8% versus estimate 7.6% and Oct’s 7.2%
5.1% versus estimate 5.1%
Takeaway: This data was released Sunday night in advance of Monday’s open, which helped fuel the Mainland’s strong performance. Economists and research analysts viewed the release as surprisingly strong, which I would agree with. “Counter cyclical” policies to support the economy will continue as the trade war’s effects linger in the coming months, though we are apt to see confidence and sentiment improve for obvious reasons. GDP growth is now likely to finish out the year at a rate above 6%, which has been an implicit goal for policymakers of late.
The Hang Seng slipped -0.65%/-179 index points to close 27,508 as volume collapsed 31% from Friday’s monster trade deal-fueled rally. Breadth was weak with only 12 advancers and 38 decliners as AIA -2%/-54 index points, CCB -0.77%/-16.2 index points and HSBC -0.58%/-15.7 index points. CK Infrastructure was the day’s best performer +2.51%/+3.4 index points with Apple supplier Sunny and AAC +2.38% and +1.36%. Textile maker Shenzhou International Group was the day’s worst performer -2.4%/-6.3 index points. The Hong Kong stocks within the MSCI China All Shares Index were off -0.2% as non-Chinese companies AIA and HSBC weighed on the Hang Seng, but are excluded from MSCI’s definition of Mainland stocks. Trade deal helped lift tech +1.31%, real estate +1.09%, industrials +0.31%, materials +0.06% and healthcare +0.04%. Utilities was off -0.98%, financials -0.71%, staples -0.59%, discretionary -0.47%, energy -0.3% and communications -0.26%. Southbound Connect volumes were somewhat high as Mainland investors were active buyers of Hong Kong stocks. Volume leader Tencent had nearly 4 to 1 buyers. Southbound Connect volume accounted for 9.5% of Hong Kong’s volume, buying $616mm of Hong Kong stocks.
The Shanghai & Shenzhen gained +0.56% and +1.56%, respectively, as volume picked up 10% from Friday. Breadth was incredibly strong with 3,255 advancers and only 400 decliners. Mega caps were off on the day due to weakness in alcohol stocks and financials as mid and small caps outperformed by 1.5%. The Mainland stocks within the MSCI China All Shares Index were +0.45% led higher by communication +2.4%, tech +2.2%, real estate +1.33%, energy +0.92%, utilities +0.86%, industrials +0.78%, materials +0.62%, discretionary +0.26% and healthcare +0.18%. Staples was off -0.96% while financials eased +0.04%. Northbound Connect volumes were moderate with foreign investors as active buyers. Shenzhen Connect volume and buying exceeded Shanghai’s (again). Foreign investors bought $99mm of mainland stocks today while Northbound accounted for just under 4% of mainland stocks.
Last Night’s Prices & Yields
· CNY/USD 6.99 versus 6.98 Friday
· CNY/EUR 7.80 versus 7.77 Friday
· Yield on 1-Day Government Bond 1.79% versus 1.77% Friday
· Yield on 10-Year Government Bond 3.19% versus 3.18% Friday
· Yield on 10-Year China Development Bank Bond 3.6% versus 3.59% Friday
· Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.18%
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