Key News
Asian equities had a surprisingly strong day following yesterday’s selloff as virtually all of the markets rebounded. Hong Kong rebounded despite protests in the financial district yesterday afternoon. Some companies let employees leave work early which led to them getting caught up in the mayhem. If we see this develop into a trend, Hong Kong may have a real problem on its hands as Ex-pats will leave the city for Singapore and maybe even Shanghai. I highly doubt this will occur as cooler heads are apt to prevail. Mainland China stocks had a fairly lackluster session as yesterday’s weak credit growth weighed on sentiment along with the lack of trade news led to weakness in tech names. President Trump is speaking at the Economic Club of New York today at noon EST. Be sure to tighten your seat belt in advance, though hopefully we receive clarity on negotiations.
2019 Singles Day was clearly a major success. Alibaba sold $38.4 billion (RMB 268.4B) worth of goods an increase of 26% from last year. The total number of delivery orders rose 24% to 1.292 billion. US brands such as Apple and Nike appeared to also have done well, selling more than RMB 100mm worth of goods. Singles Day is more than just Alibaba as JD.com reported $29.1B (RMB 204B) worth of goods sold, +28% year over year. Pinduoduo didn’t report their Singles Day sales, but the company has had strong momentum of late so one would assume it was a good day for them. One broker noted that Baozun reported their Singles Day sales +54% to $1.4b (RMB 10B). Their efforts at marketing western consumer goods were likely captured in Alibaba’s sales. Alibaba and JD.com alone sold an incredible $67.5 billion worth of goods. Isn’t China’s economy falling off cliff like I read in the media every day? Good thing we have China Last Night to provide a balanced perspective.
H-Share Update
The Hang Seng punched back above the 27k level to close +0.52%/+138 index points though volume was very light following yesterday’s sell-off, dropping -20% day over day and below the 1-year average. Breadth was moderate with 32 advancers and 15 decliners as index heavyweights Tencent +2.23%/57.3 following Tencent Music Entertainment (TME) strong Q3 earnings results post the US market close and their own release tomorrow after the Hong Kong close, AIA +0.94%/+25.8 index points and China Construction Bank +0.64%/+13.2 index points. CITIC was the day’s best performer +3.48%/+6.5 index points after announcing the sale of a unit while Sino Biopharma was off -1.57%/-3.73 index points. The Hong Kong stocks within the MSCI China All Shares Index gained +0.9% led by staples +1.71% as beer stocks did well, Tencent pulling communication +1.69%, discretionary +1.09%, real estate +0.93% industrials +0.88% and utilities +0.78%. Healthcare was the only down sector off -0.45%. Southbound Connect volumes were moderate/light, though Mainland buyers were active after yesterday’s strong buying. Volume leader CCB had 10 to 1 buying while Tencent was sold 3 to 2 and Ping An sold a touch above 3 to 1.
A-Share Update
The Shanghai & Shenzhen managed an afternoon rally to both close +0.17% though volume was off -13% day over day and well off the 1-year average. Breadth rebounded following yesterday’s steep sell off with 2,085 advancers and 1,456 decliners. Mega caps and large caps outperformed mid and small caps by a small margin. The Mainland stocks within the MSCI China All Shares Index gained +0.07% led by healthcare +0.43%, staples +0.37%, energy +0.35%, industrials +0.24% and financials +0.10%. Discretionary was off -0.67% as appliance makers Gree and Midea were off -3% and -1.95% on concerns their Singles Day discounts were steep, while Gree’s ownership stake sale to private equity firm Hillhouse has been delayed, tech -0.36% and materials -0.31%. Northbound Connect volumes were light, though Shenzhen volume managed to exceed Shanghai volume. The Hong Kong Exchange’s Market Data website is showing slight buying from foreign investors on both exchanges though my data, a spreadsheet running on data pulled from Bloomberg, shows a slight outflow of -$1.5mm. Brokers seems to supporting my data though I wanted to let you know.
Tencent Music Entertainment (TME) reported better than expected Q3 earnings after the US market close yesterday. The company was boosted by Chinese performer Jay Chou’s hit single Won’t Cry while Taylor Swift’s Lover album sold 6mm digital copies in the first 24 hours. Mr. Chou’s single led to 12mm karaoke videos recorded on the TME platform (for the record, I was not one of the 12mm).
· Revenue +31% $910mm (RMB 6.51B) versus estimate 6.46B
· Paying music users +42.2% to 35.4mm
· Cost of revenue did jump 42.9% to $601MM (RMB 4.3B)
· Gross profit +12.6% to $309mm (RMB 2.21B)
· Adjusted EPS RMB 0.74 versus estimate 0.65
Last Night’s Prices & Yields
Despite the big move, CNY feels like it wants to continue to appreciate
· CNY/USD 7.005 versus 7.0103
· CNY/EUR 7.72 versus 7.73
· 1-Day Government Bond Yield 1.97% versus 1.68%
· 10-Year Government Bond Yield 3.26% versus 3.25%
· 10-Year China Development Bank Bond Yield 3.67% versus 3.68%
· Commodities on the Shanghai & Dalian exchanges were largely lower though Dr. Copper -0.11%
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Krane Funds Advisors, LLC is the investment manager for KraneShares ETFs. Our suite of China focused ETFs provide investors with solutions to capture China’s importance as an essential element of a well-designed investment portfolio. We strive to provide innovative, first to market strategies that have been developed based on our strong partnerships and our deep knowledge of investing. We help investors stay up to date on global market trends and aim to provide meaningful diversification. Krane Funds Advisors, LLC is majority owned by China International Capital Corporation (CICC).
