May Holiday Is Planes, Trains, & Casinos

Key News

Asian stocks were largely higher post yesterday’s global holiday, less the United States while China remains on holiday until Thursday.

Australia’s central bank unexpectedly hiked interest rates by 25 basis points which had one of our currency traders fired up as they believe it is an indication that central banks, including the US Fed, will keep hiking rates. Hong Kong volumes were light with China and Southbound closed with the latter usually accounting for 1/3 of Hong Kong trading. Hong Kong shares opened higher but faded with Hong Kong’s most heavily traded Tencent up +0.41%, Alibaba HK gaining +0.3%, HSBC closing higher +4.45% on strong financial results and buyback plans, AIA up +0.59%, Meituan down -0.38%, and JD.com HK closing higher +1.69%.

Real estate was the worst sector after a small distressed property developer, KWG Group (1813 HK) fell -24.27%, and defaulted after missing an interest payment. The company’s problems were well known as the stock’s market cap was US $448 million on Friday from a high of $4.4 billion in 2019. Labor Day travel numbers look very strong thus far with Macao’s packed streets and casinos garnering attention as highlighted in MGM’s financial results after yesterday’s US close and strong April revenue growth of nearly 450% year over year. Our colleague Xiabing Su noticed that all train tickets at Shanghai Hongqiao train station were sold out on Friday when 19.66 million train rides were taken.

Over the weekend, April’s Manufacturing PMI was 49.2 versus expectations of 51.4 and March’s 51.9 while the Non-manufacturing PMI was 56.4 versus expectations of 57 and March’s 58.2. The “official” PMI are a survey of large companies while PMIs are a diffusion index, meaning readings above 50 indicate growth month over month. Clearly, Manufacturing was off which isn’t a great sign for the global economy. Non-manufacturing held up well while business activity expectations in both surveys remained strong. The PMIs highlight that an element of China’s economy, export-driven manufacturing, will face the headwind of a slowing global economy. The incremental economic rebound as noted in the Politburo’s meeting last week is why there will be an emphasis on domestic consumption.

A Mainland media source noted increased government policy to energize State Owned Enterprises which is also garnering the attention of sell-side analysts. Shanghai is beta testing housing loans for families with multiple children as several cities are testing various measures to increase the birthrate. A Mainland media source noted an economist’s recommendations for addressing China’s demographic issue. Recommendations include improving childcare/maternity/paternity leave policies, extending the retirement age, and promoting immigration. The key is policymakers are aware of the issue.

The Hang Seng and Hang Seng Tech were mixed +0.2% and -0.08% respectively on volume off -25.67% from Friday which is 63% of the 1-year average. 184 stocks advanced while 308 stocks declined. Main Board short volume was flat versus Friday which is 68% of the 1-year average as 18% of turnover was short turnover. Value factors outpaced growth factors as large caps outperformed small caps. Top sectors were utilities up +2.4%, industrials gaining +0.9%, and materials closing higher +0.74% while real estate fell -1.58%, staples closed lower -0.71%, and tech was down -0.45%. The top sub-sectors were utilities, consumer services, and banks while auto, real estate, and media were the worst. Southbound Stock Connect was closed.

Shanghai, Shenzhen, and STAR Board are closed until Thursday.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD was 6.92 Friday
• CNY per EUR 7.57 versus 7.60 Friday
• Asia Dollar Index +0.09% overnight
• Yield on 10-Year Government was 2.78% Friday
• Yield on 10-Year China Development Bank Bond was 2.94% Friday
• Copper Price gained +0.19% Friday
• Steel Price fell -1.21% Friday