Ke Colin Zheng

Market Recap: Asia EM experienced a risk-off triggered by Apple revising down its quarterly earning for the 1st time in a long while, blaming a slowed down Chinese economy. The risk-off went beyond apple supply chain stocks, putting pressure on FX, rates, and high beta stocks.

Data Updates: AAPL earning is just another data source confirming the same thing: a slowdown in Chinese economy. Monetary easing is not enough a solution as suggested today (financial sector barely popped on targeted RR cut). To clear or improve the weak sentiment, market would be looking for something impactful (trade-negotiation updates this weekend could be one).

Market View: Today’s risk-off is curtained by major index slow grinding along. As suggested from previous posts: AHP, volatility, and RSI, could all point to a quick rebound if another 2-3% index drop.

Market Recap: A&H both took a deep dip on the 1st trading day of 2019 with decent volume, on bad economic print. Xi’s speech on Taiwan reminds the market of potential tail risk across the strait.

AH Premium: As usual, H reacted a lot more aggressively on bad economic print, while A paused in front of the recent low of 2449. This unsynchronized move pushed up AHP to the day high of 119. Note recently, AHP hit the local peak of 120 before reversing its course after an index crash of 5%.

Data Updates: The rest of the week leaves market with no new China data to digest further, but lot of US data releases and FED talks. With how few hikes being priced in currently for 2019, I suspect any additional color will create more upward risk on rate hikes.

Summary: As domestic updates will be light and international ones most likely not super positive, in my view, market direction for the rest of the week is largely determined downward, with the rate of change potentially to be slowed down. However, VHSI, AH Premium, RSI are all pointing potentially stretched if market drops another 2-3% further, which could be a good entry to bet on a quick rebound.

Market Recap: the very recent 2018 year-end rally (HSI/HSCEI) has been largely attributed to the global pension fund month/quarter-end rebalance. However, the low volume also reflected the weak market fundamental overall.

Flow: Pension fund rebalance flow could still have the last bit of the leg to go when market re-opens on Jan 2nd. However, focus should be on the re-open of SH-HK connect flow, which has been closed since 12/25/2018. Expect an outflow on mean-reversion.

Economic Data: A slew of economic updates will be released in the beginning of Jan. China Caijin PMI will most likely follow suite of the official one, confirming the slowdown of the China economy. Any significant downward deviate from surveyed will likely put pressure on market.

Summary: Indeed, the economic slowdown, the uncertainty on US-CN trade negotiation development, the lacking details of the new policies (tax-cut etc.), are major negatives that will linger around.