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China Last Night: October 15, 2019

By:

Chief Investment Officer

Live From Beijing Day 2: New Loans & Aggregate Financing (The Good), CPI/PPI (The Bad), and Money Supply (The Unchanged)

Key News

Asian equities were predominantly up with Japan playing catch up after yesterday’s holiday while South Korea, Taiwan, India, Thailand and Indonesia were up.  China, Malaysia and Singapore were down today while Hong Kong was basically flat despite China’s mainland media confirming trade talks had made “substantial progress”.  Yesterday’s Bloomberg article on the lack of media mention was the latest negative spin on the positive steps taken by both sides. Despite the fact that yesterday’s piece was proven factually inaccurate, Bloomberg has another negative piece out this morning that China wants tariffs lifted before buying more agriculture based on unnamed sources (again). Didn’t the USDA already report increased China agriculture purchases yesterday? The half-empty types I suppose…. Tech lead the mainland China markets lower, though volumes on Hong Kong and China were anemic as profit taking ruled the day.  

We have spoken to the issue of affordable housing in Hong Kong as one of the underlying issues for continued discontent. Carrie Lam confirmed in a press conference that housing will be a key topic in her upcoming annual speech.

Great fall weather here in Beijing. Even better meetings, having met with an economist, internet/e-commerce analyst and other experts. I’ll provide more color over the next several days as tomorrow headed to see several companies including Didi.

Kweichow Moutai reported Q3 earnings after the China close today. Net income grew 17% year over year to 10.5B ($1.483B) while Q3 revenue 21.4B ($3.022B).

September Data Year over Year – Released After Yesterday’s Close

CPI3% versus estimate 2.9% and August’s 2.8%
PPI-1.2% versus estimate -1.2% and August’s -0.8%

Takeaway: The CPI’s strength was driven by the 11.2% YoY rise of food prices while non-food prices rose a mere 1% YoY. The African swine flu has had a material effect on pork prices as China’s hog herd has been culled by 1/3 year over year and apt to reach a fall of 50% in the next several months according to a local expert. Pork prices rose nearly 70% year over year and nearly 20% month over month. PPI was pulled lower for the third month in a row as raw materials (-4.8%) and manufacturing (-1.2%) declined though matched the market’s weak expectations.

September Data Year over Year – Released After Last Night’s Close

New
Loans
1.690 trillion versus estimate 1.360 trillion and
August’s 1.21 trillion
Aggregate
Financing
2.270 trillion versus estimate 1.9 trillion
and August’s 1.980 trillion
M28.4% versus estimate 8.2% and August’s 8.2%

Takeaway: Wow! The new loans is a big surprise jumping 12% year over year. It is too bad this data came out prior to the market’s close as it should have a positive effect on sentiment. The market has been concerned about tight liquidity curtailing private companies’ access to capital. The positive reading could be a green shoot that China’s stimulus is making its way to the real economy. Premier Li reiterated the need for continued “counter cyclical adjustment policy tools”, cutting “taxes, fees, and reduce financing costs” at a symposium he chaired yesterday. Doesn’t sounds like the foot is coming off the gas pedal though it isn’t floored.

H-Share Update

The Hang Seng opened higher but eased to a loss of -0.06%/-15 index points to close at 26,506 as volumes declined -24% day over day/well off the 1 year average on mixed breadth of 24 advancers and 26 decliners. CCB gained +0.8%/+16.58, China Mobile -0.98%/-12 index points and Geely Auto -2.78%/-6.1 index points. Wharf Real Estate +2.09%/+3.39% while China Unicom -3.13%/-4.8 index points. The Hong Kong stocks within the MSCI China All Shares declined -0.09% as discretionary gained +0.99% despite auto weakness, staples -0.35%, and financials +0.19% while materials -1.11%, energy -0.84%, industrials -0.82%, tech -0.66% and real estate -0.38%. Southbound Connect volumes were moderate/higher as buyers were active. Volume leader CCB had 1.5 buyers to sellers while CM Bank was heavily sold and Tencent had modest buying.

A-Share Update

The Shanghai & Shenzhen declined -0.56% and -1.11% as volumes declined 14% day over day/well off the 1-year average as yesterday’s massive positive breadth (only 500 declining stocks) swung the other way with only 903 advancers and 2,725 decliners. Like breadth, yesterday’s trend reversed as mega caps managed a positive day while small and mid-caps declined more than 1%. The mainland stocks within the MSCI China All Shares declined -0.67% as staples gained 1.15% as the only positive sector led by liquor stocks. Yesterday’s leading sector tech lost -2.76%, materials -1.47%, utilities -1.22%, communication -1.2%, energy -1.1%, discretionary -1.06% and industrials -1.02%. Northbound Connect volumes were moderate with buyers active on both the Shanghai and Shenzhen.  Volumes on the Shenzhen exceeded the Shanghai by a small margin though foreign buyers were more active on the Shanghai. Foreign investors purchased $518mm of mainland stocks today.

A broker noted that Budweiser Brewery Co APAC (1876 HK) will be added to MSCI indices on October 15th.

Last Night’s Stats

  • USD/CNY 7.07 versus 7.06 yesterday
  • Euro/CNY 7.79 versus 7.79 yesterday
  • Yield on 1-Day Government Bond 1.69% versus 1.69% yesterday
  • Yield on 10-Year Government Bond 3.14% versus 3.15% yesterday
  • Yield on 10-Year China Development Bank Bond 3.74% versus 3.74% yesterday
  • Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.17% .

Originally Posted on October 15, 2019 – Live From Beijing Day 2: New Loans & Aggregate Financing (The Good), CPI/PPI (The Bad), and Money Supply (The Unchanged)

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