Asian equities were broadly higher, however volumes were universally lower. Hong Kong and Mainland China managed small gains supported by surprisingly strong PMIs. The official PMI was released over the weekend while the Caixin was released mid-morning. Another positive was that Hong Kong’s November real estate sales were surprisingly strong as someone believes the current Hong Kong economic downdraft is a buying opportunity.
China’s response to the Hong Kong bill last Wednesday, barring US Navy ships from visiting Hong Kong and sanctioning some US-linked NGOs operating in Hong Kong, had no impact on trade. The response was fairly muted which I took as a positive as the biggest losers will be US sailors, who usually park off the Wan Chai district to enjoy the neighborhood’s nightlife. US-China trade talks will need to step it up, remember December 15th was the next tariff step, though we could see it pushed out. The media appears to believe China’s insistence on a tariff rollback is a stumbling block though the current tariffs are hitting low end manufacturing which is labor intensive. Healthcare stocks had an off day following an analyst downgrade based on the impact of China’s drug procurement process. Alibaba (9988 HK) was off -1.46% on profit taking though sell side analysts upgraded their price targets this morning.
November PMI Data Show Expansion
50.2 versus estimate 49.5 and Oct’s 49.3
54.4 versus estimate 53.1 and Oct’s 52.8
51.8 versus estimate 51.5 and Oct’s 51.7
Takeaway: November PMIs surprised to the upside, defying the “experts”. The narrative is that China’s economy is slowing so the PMIs are being dismissed as a “one off”. Only time will tell, though it is worth noting that the Caixin manufacturing PMI, which focuses on a relatively small sample size of smaller private companies, has risen for four months in a row, reaching its highest level since December 2016 despite a slight fall in output and new orders. The official PMI, which focuses on a much larger data set of bigger companies, rose, driven by an uptick in new orders and production while employment remains off. Over the weekend, PBOC head Yi Gang stated that the world economy is in a downturn though China would not devalue its currency in response. Governor Yi’s statements reiterated that policy would be supportive to the economy, but we should not expect the shock and awe stimulus of 2009. The PBOC is clearly keeping its powder dry in light of trade uncertainties.
The Hang Seng gained +0.37%/+98.2 index points to close at 26,444 as volumes plunged 25% from Friday. Breadth was positive with 26 advancers and 16 decliners led by AIA +0.64%/+17.1 index points, Ping An Insurance +0.96%/+14.5 index points and HSBC +0.52%/+13.5 index points. China Resources Land was the day’s leading gainer +4.28%/+12.7 index points though several real estate firms were on its heels. Sino Land Co missed the news that it was a real estate rally off -2.21%/-2.3 index points, though worth noting Apple supplier AAC was off -1.46%/-1.5 index points. The 207 Hong Kong stocks within the MSCI China All Shares Index gained +0.53% led higher by real estate +3.33%, staples +0.91%, discretionary +0.85%, materials +0.74%, industrials +0.48%, communication +0.38%, financials +0.22% and energy +0.05%. Healthcare was off -0.68%, utilities -0.14% and tech -0.04%. Southbound Connect volumes were moderate with buyers out in force. Volume leader CCB had outsized buying volume, Tencent had 3 to 2 buying and Sunac had slight selling. Southbound Connect volumes were 8% of Hong Kong’s total volume.
The Shanghai & Shenzhen gained +0.13% and +0.22% as both indices remained just below support levels of 2900 and 1600. Mainland volumes were off again having reversed from the first half of the year when volumes were quite high. Breadth was mixed with 1,742 advancers and 1,762 decliners as the large, mid and small caps traded inline. The 501 mainland stocks within the MSCI China All Shares Index eased -0.04% as healthcare was off -1.54%, energy -0.58%, discretionary -0.35%, industrials -0.22%, utilities -0.21%, materials -0.08% and financials -0.04%. Real estate had a strong day +1.85%, tech +0.5%, communication +0.32% and staples +0.22%. Northbound Connect volumes were light though foreign investors were active buyers of Mainland stocks. Shenzhen Connect volumes outpaced Shanghai’s slightly though Shanghai buying slightly outpaced Shenzhen’s. Foreign investors bought a surprisingly strong $384mm of Mainland stocks. Northbound Connect accounted for 6% of the Mainland’s total volume today.
Last Night’s Prices & Yields
· CNY/USD 7.04 versus 7.03 Friday
· CNY/EUR 7.77 versus 7.74 Friday
· Yield on 1-Day Government Bond 1.77% versus 1.85% Friday
· Yield on 10-Year Government Bond 3.21% versus 3.17% Friday
· Yield on 10-Year China Development Bank Bond 3.61% versus 3.57% Friday
· Commodities were mixed on the Shanghai & Dalian Exchanges with Dr. Copper -0.11%
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