Buying in times of Uncertainty
Greater China Sales Traders
Summary: Market seemed to have resume appetite in both A-shares and Hong Kong listed stocks alike when discount valuations give way to investors for bargain purchase. IPO market on the other hand extended its muted tone from July on the backdrop of escalating political tension in the city, with Alibaba giving a second thought of the timing of its Hong Kong listing.
Stock Connect and HK IPOs
- Foreign traders bought a total of 13.2 Billion RMB (1.84 Billion USD) of China A-shares through the Northbound tranche via Shanghai and Shenzhen Stock Connect in August, representing a 10% jump of inflow from 12.0 Billion RMB in July as escalating trade tension between US and China weighed on sentiment.
- Average daily turnover of Northbound stock connect aggregating both buy and sell flow jumped to 39.5 Billion RMB in the month, representing a 24% rise from July’s 31.9 Billion RMB.
- Northbound flows accounted only 4.4% of China’s total turnover in the month.
- China’s weakening cyclical economic outlook, structural challenges and policy responses remain the main theme overhanging the nation’s banks’ credit fundamentals.
- Chinese Yuan has fallen substantially and broke through the long discussed 7-per-dollar support level that held for years after a series of dramatic escalation of trade war fuelling further concern on the apparently slowing global growth. This move has once again brought up the discussion of capital outflows and the sufficiency of foreign reserves underpinning the support for China’s banking system.
- PBOC also rolled out the new borrowing rate benchmark in the form of Loan Prime Rate on 20-Aug, with an aim to ease borrowing cost and facilitate more transparent pricing and a stronger indicator on the broad bank loan market. This move will essentially dent the net interest margin for banks in exchange for better support to corporate borrowers and improve funding conditions around the domestic equity market.
Northbound Top 10 Names
- Net purchases through the Southbound Stock Connect surged to 58.6 Billion HKD, tripled from 19.7 Billion from last month. Average daily market turnover in August reached 10.2 Billion, comparing to 7.4 Billion in July, is a 37.8% growth.
- Mainland Investors found interests in Hong Kong listed companies as lingering political unrest in the city started to dampen equity valuations. The discount of H-to-A shares widened in August to the highest level since early 2018.
- HSI Index shed 6.68% in the month as protest conflicts worsened in the region with increasingly violent incidents reported citywide. Meanwhile, the market is in search of a general direction at a time where US and China are stepping up the stakes in planning the tariff on imports from the counterpart countries.