Trade Deal impact on equities diminished by MSCI inclusion

Greater China Sales Traders

Summary:  2 key events logged on the same day in November with MSCI A shares inclusion and Alibaba's Hong Kong debut supported wider sentiment in the stock market. HIBOR rate spiked on high demand on HKD fund with behemoth IPO listing along with year-end effect.


Stock Connect and HK IPOs

Northbound Trading

  • November saw another record setting moment for Northbound activities with the week ending 29-Nov booking the highest net inflow for a single week at 31.9 Billion RMB (4.55N USD), pushing the monthly level to over 60.4B RMB (8.58B USD) despite a lack of fundamental driver in local market and a stagnant progress from the US-China trade front.
  • Last month also marked the second highest inflow month in the year, only second to September volume at 64.6B RMB, with buyers rushing to the market following MSCI’s A-share inclusion.
  • One of the key events in the month is the MSCI inclusion of China A-shares on 26-Nov. The weighting of China A Shares in several indexes was uplifted from 15% to 20% as communicated first time in 2018. This marked another milestone for Beijing’s drive to boost their Chinese stocks’ global exposure among foreign traders.
  • In one of the most recent MSCI consultation, investors expressed several concerns with major focus on access to hedging and derivative instruments in the likes of on- and offshore index futures and options contracts. Traders also have concerns on short settlement cycle for A-shares and the misalignment between onshore China and Stock Connect holidays on top of the possibility for omnibus mechanism in stock connect markets.
  • China delivered its November manufacturing PMI at 50.2 against estimate level of 49.5 and 49.3 in October. A reading in the expansion territory signalled recovery strength in the China economy is the first upbeat reading in seven months after the US rolling out the tariff plays in May. Caixin PMI numbers are also in line at expansionary level of 51.8.
  • Offshore Yuan also recovered substantially at one point in early November with the exchange rate per US Dollar coming back down to 6.97 range on US-China trade optimism that a “Phase One” deal may be in sight. However, without further progress on this front following an upbeat sentiment, the exchange rate reverted to above the 7.00 key line for the last 2 weeks in the month.
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