Brief China: A Few Thoughts on Weak February China Auto Sales – Lunar Holidays Don’t Explain It in SAAR Terms and more

In this briefing:

1. A Few Thoughts on Weak February China Auto Sales – Lunar Holidays Don’t Explain It in SAAR Terms
2. China Economics:  China’s Strategy on Trade War Has Worked
3. Best World (BEST SP): BT Article, Franchise and KOL
4. SHIBOR and Rates
5. StubWorld: Wharf Under Pressure As Cooling Measures Bite

1. A Few Thoughts on Weak February China Auto Sales – Lunar Holidays Don’t Explain It in SAAR Terms

February 2019 had 2 more selling days than February 2018, and 5 less selling days than in January 2019.  While CAAM and other media reports were quick to point to the lunar holidays as the main culprit behind the sequential and YoY fall in auto demand, the lunar holiday effect is taken into consideration when the sales figures are seasonally adjusted.  According to our observations China’s February SAAR fell sequentially to 21.7m units from 24.8m units January (-12.3% MoM), and from 27.7m units in February 2018 (-21.4% YoY). 

Over the past few months we did not see much macro signals that would point to an imminent collapse in selling rates to the level of February’s observation so we would wait for the March data points to assess how much truth there may to suggestions that car buyers may be holding back in anticipation of another round of government stimuli.  In the meantime, we would not ascribe too much credence to talks about lunar holidays or shrinking shadow banking systems as there is very little statistical evidence that would support such anecdotal assertions.

2. China Economics:  China’s Strategy on Trade War Has Worked

First, during the past couple of weeks, the most important event regarding the Chinese economy is the China US trade talk.  It is reported that both sides have made a preliminary agreement on trade war truce. It is an extraordinary development.   At the beginning of this China US trade war, most analysts had underestimated the seriousness of this trade conflict. Then after a series of escalations, analysts tend to overestimate this conflict by exploring the possibility of a full-scale conflict between China and US including national security, military and economic competition etc. we agree that China and US are in direct competition in almost every field. The issue is President Trump. He has to deal with the internal issues including the Muller investigation and the Democrats. So far, he has failed to make essential progress in dealing with internal opponents. He also just failed another Kim Trump summit. In our opinion, he is keen to make a deal with China. He is in a much weaker position than President Xi. Although at the beginning President Xi was under some criticism, currently, his authority is with no significant challenge. President Xi has also pretended to be humble when dealing with Trump. In our opinion, China’s strategy, such as buying time by deliberate delays or deceptions, has worked. 

3. Best World (BEST SP): BT Article, Franchise and KOL

Best World International (BEST SP) share price has been hammered due to the recent article in Business Times, although the company has addressed them one by one. The annual meeting that recently took place in their office in Singapore shed some light on the seemingly “new but not so new” franchise business model in China. The company also has started to engage Key Opinion Leaders (KOL) aka social media influencers as part of their social selling campaign. 

4. SHIBOR and Rates

There are two important points worth noting. First, China remains an overwhelmingly short term capital market from the money markets to structured deposits to bond duration which remain heavily tilted towards durations under five years. Second, what we are seeing in the money markets accords with the PBOC unofficial policy of trying to keep the headline rate unchanged but nudge down the unofficial rates.

5. StubWorld: Wharf Under Pressure As Cooling Measures Bite

This week in StubWorld …

• Wheelock & (20 HK) is coming up “expensive”, but it’s Wharf Holdings (4 HK) which is under-performing after PRC property sales targets are lowered amid Beijing’s cooling measures.

Preceding my comments on Wheelock and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.