May 22 HSI -1350pts, T/O +45% DoD, Shorts rise to 26%, Prem Li's key points

HSI -1350pts (-5.6%) 23,930 HSCEI -423pts (-4.3%) 9,427 T/O HK$180.54bn (+45.3% DoD)

Europe opened lower but working higher, DAX and CAC have made it into the green, FTSE just testing flat

US futures currently indicating a slight +VE. US markets closed on Monday.

US 38 companies reporting today including Alibaba, Regis, JC Penny, Deere, Trip.com and more(for full list https://finance.yahoo.com/calendar/earnings/ )

Investors will be watching for more news on HK over the weekend. Hong Kongers already seem to be expecting protests over the weekend from the chats going around. It will be interesting considering the 8 person group law in force at present. A lot of people had said that the government was deliberately keeping the group rule in force to prevent protests rather than for medical reasons; seems there may have been truth in that. Monday would normally see light volumes with the US markets closed, which could amplify any market moves. Huge shorting today considering HK has an uptick only shorting rule. So watch the market volumes on Monday

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Shanghai

Northbound RMB 26,796m Sell 15,044m : 11,752m Buy

Southbound HK$ 17,104m Sell 6,908m : 10,196m Buy

Shenzhen

Northbound RMB 36,854m Sell 18,444m : 18,410m Buy

Southbound HK$ 12,101m Sell 5,488m : 6,613m Buy

Short Selling HSI Friday 25.7% vs 20.5% Thursday (very high as uptick only rule)

Top Shorts Hang Seng Bank (11) 63%, Wharf REIC (1997) 52%, CLP (2) 49%, HK & China Gas (3), Hang Lung PPTY (101) 42%, MTRC (66) 42%, NWD (17) 38%, CK Asset (1113) 38%, China Overseas (688) 37%, Country Garden (2007) 35%, BoC HK (2388) 35%, Power Assets (6) 35%, HSBC (5) 34%, Henderson land(12) 34%, ICBC (1398) 32% SHKP (16) 31%, CCB (939) 31%, Hengan (1044) 31%, Sino Land (83) 30%, Techtronic (669) 30%, BoC (3988) 29%, CKI (1038) 27%, AIA (1299) 26%, Link Reit (823) 26%, Swire A (19) 26%, BankComm (3328) 25%, Galaxy Ent (27) 25%

IPO KINTOR PHARMA (9939 HK) debut today, close at HK$ HK$21.3, +6.7% from the IPO price, T/O was $1.484bn

YEAHKA (9923.HK), to be listed on 1 June, recorded over 214 times of over-subscription in the public offering. The TENCENT (0700.HK)-backed Chinese payment-based technology platform recorded over $35.3 billion in margin according to nine local brokers.

DATA
CHINA Premier Li Keqiang gave his work report starting at 9am, it went on for nearly two hours. He said there was no specific economic growth target set for this year. That tax trims and charge cuts totaled RMB2.36 trillion last year, beyond the original target at nearly RMB2 trillion. During the year, rural poverty population reduced by 11.09 million, while the poverty rate went down to 0.6%. Also that that FY20 budget deficit is set higher than 3.6%, and the size RMB1 trillion larger than FY19's. RMB1-trillion coronavrirus government bonds will be issued. Employment security and livelihood assurance are put at the top priority this year. Beijing is resolved to get rid of poverty and to construe a prosperous community.FY20 target is set at adding 9 million or more positions in urban areas, keeping urban surveyed and registered jobless rates respectively around 6% and 5.5%, and pushing CPI by around 3.5%. He also said the sturdy monetary policy has to be more flexible this year. China will sharply raise its M2 and pace of aggregate financing to real economy aloft 2019's level through a combination of RRR cut, interest rate cut and re-lending. He mentioned the need to keep RMB exchange rate basically steady at a reasonable and balanced level. China is to facilitate the development of advanced manufacturing and emerging industries. Meanwhile, small and medium-sized banks will be propelled to serve MSMEs better by replenishing capital and bringing perfection to their governance. Li also proposed the ChiNext reform and a pilot registration system. He said governance principles, such as "One Country, Two Systems", "Hong Kong People Ruling Hong Kong", "Macau People Ruling Macau" and high degree of autonomy, have to be implemented precisely. Moreover, solid and sound legal systems and enforcement mechanisms should be established to protect national security in Special Administrative Regions. China opposed any interference from foreign countries in Hong Kong and Macau's affairs. Meanwhile, China should uphold its political stance against "Taiwan Independence”. That China will push forwards the liberalization and convenience in trade and investment, while firmly upholding the multilateral trading system by taking an active role in WTO reform. Equally, China will put its phase one trade deal with the US into practice.China's Secretary-General of the National People's Congress Standing Committee, said seven articles in Hong Kong National Security Law bill laid precaution and punishments on four grounds.

The bill enacted laws to prevent anti-secession behavior and foreign interference activities.HONG KONG Centre for Health Protection said there were 2 new imported COVID-19 cases today.

INDEXES

China CSI 300 -90pts (-2.3%) @ 3,824 Opened lower and trended lower through the morning in choppy trading. PM saw selling resume hit the day low of 3,828 around 1:30pm but then worked back to the lunchtime level in choppy trading only to sell back down into the close. Many saw the fact that China did not set a GDP target as -VE although in fact its a good thing as it should stop wasteful allocations of scarce resources, the fact that the NPC said it was due to virus and global uncertainties didn’t help. Investors also aware of the heavy selling in HK on concerns about China forcing Article 23 on HK; their worry is not the law as it would bring HK into line with China but the US/Global backlash at the underling of the Basic Agreement and “one Country two systems”. Whilst we do not know the details investors were in the mood to sell first and ask questions later.

HSI Pre Market -523pts (-2.2%) @ 23,757 the day high vs -427pts ADR @ 23,853 on higher than normal pre market T/O. It then trended lower into lunch 23,160. Further selling as Europe reacted to the moves and additional margin call selling which took the market to the day low (22,878). A small bounce but failed to get back to the lunchtime level and the market reversed and trended lower into the close. Investors worried about the prospect that China might force Article 23 on HK without going through Legco and using the NPC to legislate and then add it to Annex III which already holds the National anthem and National Flag laws. Effectively China is saying that ‘One country two systems' is dead. It is also expecting the Pro Beijing camp to lose its ‘arranged’ majority in the September elections and its not worried by the potential backlash from the US/World or from the citizens of Hong Kong. But from todays action investors are. Add to the mix comments from China that the nation will never accept lawsuits or unwarranted compensation demands related to the pandemic, and it will safeguard its sovereignty, security and interests, and threatened countermeasures.

T/O was +45% DoD which shows the element of panic and margin calls. US is closed on Monday which probably added to the selling pressure.

Active Heavyweights

AIA (1299.HK) -9.4%
HSBC (5.HK) -6.9%
TENCENT (700.HK) -4.8%
HKEX (388.HK) -4.4%
CCB (939.HK) -4%
PING AN (2318.HK) -3.4%
ICBC (1398.HK) -2.4%

REGIONAL MARKETS

Japan opened flat, pre market inflation data missed f/casts and market trended lower for most of the day with a small tick up into the close. Special BoJ meeting left the interest rate unchanged. Nikkei Closed -0.8%

S Korea opened flat but trended lower through the day closed Kosdaq -1% and Kospi -1.4%

Taiwan opened lower (having closed at 11k on Thursday) and trended lower to close at the day low -1.8% @ 10,811 After market Taiwan Unemployment hit Apr +4.1% vs +3.76% Mar (F/cast was +3.8%) an all time high.

AFTER MARKET

In response to Chinese National People's Congress (NPC)'s bill on Hong Kong national security law, a spokesperson of Hong Kong and Macau Affairs Office (HKMAO) stated that the decision was made in a timely manner and of utmost importance, cited Xinhua News Agency. Under the intact "One Country, Two Systems" framework, Hong Kong's capitalism remains unaffected with her high degree of autonomy and legal system, while foreign investor interests remain within lawful protection. The city is for sure heading to a bright future so long as the national security is practically upheld, opined the Chinese spokesperson.

Hong Kong saw an upsurge in VPN app downloads as Beijing aims to establish a sound legal system and enforcement mechanism for safeguarding national security in Hong Kong SAR reported Bloomberg. Seven of the ten most-downloaded apps on App Store (excluding games) were VPN apps in the city. NordVPN, the more popular provider, claimed on Thursday it had received 120 times more installs, while its competitor Surfshark VPN recorded a 700% spike in Hong Kong sales.

Centa-City Leading Index (CCL) last stood at a 12-week high of 177.54, +0.91% weekly with the sharpest rally in 27 weeks. Some homebuyers had entered the market post-Easter, when second-hand deals started to burgeon. The significant home deal rally after the May Day holiday had affirmed the beginning of a new wave of home market upturn. That may all be in question after the today’s market action.

CHINA RE (1508.HK) the aggregate primary premium income as derived from China Continent Property & Casualty Insurance for the period from 1 January 2020 to 30 April 2020 was RMB16.639 billion, +6.12%YoY.

MARKET HOURS

The banks who had granted loans to Luckin Coffee have started court proceedings at British Virgin Islands against its Chairman Charles Zhengyao Lu to liquidate his private company Haode Investment, Reuters reported. The involving loan banks are Credit Suisse, Goldman Sachs, Morgan Stanley, Barclays, CICC (3908.HK) and HAITONG INT'L (665.HK) in an amount of US$518 million.

POLITICS Carrie Lam said she endorsed the NPC's deliberation of the Decision to establish and improve at the national level the legal system and enforcement mechanisms for the HKSAR to safeguard national security. She said in view of the increasingly serious situation the HKSAR is facing in relation to national security and the difficulty of the executive and legislative authorities of the HKSAR to complete on their own legislation for safeguarding national security in the foreseeable future. She deeply believes that the national law to be enacted by the Standing Committee of the NPC will seek to practically and effectively prevent and curb acts and activities that seriously undermine national security, as well as sanction those who undermine national security by advocating "Hong Kong independence" and resorting to violence. But it will not affect the legitimate rights and freedoms enjoyed by Hong Kong residents under the law, or the independent judicial power, including that of final adjudication, exercised by the Judiciary in Hong Kong.

PROPERTY The tender for the medium-sized residential site, Ap Lei Chau Inland Lot No. 137 at Ap Lei Chau Praya Road is closing today (22 May). 19 tenders have been received for the site, including sole-basis bids from TAI CHEUNG HOLD (88.HK), CHEVALIER INT'L (25.HK), CK ASSET (1113.HK), NEW WORLD DEV (17.HK), GRAND MING (1271.HK) and SINO LAND (83.HK), KAISA GROUP (1638), KWAH (173 HK) and CHINA OVERSEAS (688 HK); and joint-basis bids from LAI SUN DEV (488.HK) and K&K Property.

Apple had in April sold 3.9 million iPhones in China, representing a 1.6-time increase from March, said CINNO Research, and new iPhone SE accounted for 24% of the sales during the month

MTR CORP (66.HK) unveiled the patronage figures for April. The domestic service carried 74.543 million passengers in total, -43.66% YoY and 11.31% MoM.

BRIGHT SMART (1428.HK) that it had disposed of a total of 439,600 BABA-SW (9988.HK) shares on the market in a series of transactions conducted between 13 March 2020 and 21 May 2020 for an aggregate consideration of HK$87.21 million. The company considered the disposal would realize an immediate gain of HK$1.75 million.

PRE MARKET

US Department of Agriculture and the Trade Representative said China is making progress in regards of the execution of phase one trade deal and some of the US farm products could now be exported to China. Meanwhile, China refreshed the list of facilities that the US could use to export meat and other products.

NPC Press conference mentioned:

The urgency of optimizing the new draft biosecurity law for review and passage within this year.

That national security is a cornerstone of a stable country, as such safeguarding national security is where the fundamental interests lie for people in China, including Hong Kong.

That some members of U.S. Congress had floated negative bills targeting China over the COVID-19 pandemic. These bills were completely unfounded accusations of China, which had breached International Law and underlying norms in international relationships. Beijing voiced its unswerving opposition against the bills.

Trump said the White House will make a very strong reaction upon the passage of the law, despite no details on the Law being available.

COUNTRY GARDEN (2007.HK) suggested to support agriculture-dominant enterprises to vigorously partake in the global agricultural investment development and build overseas crop base. Meanwhile, trial can be carried out for molding unmanned farms orienting enterprises to raise productivity. Shanghai Securities News reported.

Tencent Video Cloud Business, said that the live streaming traffic of e-commerce operators during epidemic shot up by more than 400% period on period. Among which, Mini Programs' live streaming was the top favorite of SMEs. Tencent Video Cloud supported over 3 million times of live streaming.

COMMENT

*PETROCHEMS WEAK despite oil prices higher overnight there are demand recovery concerns in China. CNOOC (883 HK -5.6%) SINOPEC (386 HK -5.4%) PETROCHINA (857 HK -5.8%) CH OILFIELD (2883 HK -6.6%).
*HK BANKS WEAK as President Trump warned that Washington would react "very strongly" against the attempt to gain more control over HK, saying a high-degree of autonomy and respect for human rights were key to preserving the territory's special status in US law, which has helped it maintain its position as a world financial center. HSBC (5 HK -6.8%) STAN CHART (2888 HK -6.8%) HANG SENG (11 HK -7%) BOCHK (2388 HK -7.8%).
*E-COMMERECE PLATFORMS WEAK BAIDU is considering delisting from Nasdaq and moving to an exchange closer to home to boost its valuation, Reuters reported, as it believes itself to be undervalued. BABA (9988 HK -3.8%) earnings is due today. Traders will be looking for an acceleration of online sales, and will likely watch for additional details on the company's $28b investment in cloud computing in the next 3 years. TENCENT (700 HK -4.4%) MEITUAN (3690 HK -5.4%) CH LIT (772 HK -4.9%) KINGSOFT (3888 HK -8.5%).
TONGCHENG-ELONG (780 HK -1.2%) made a net loss of 55.6m yuan compared with a net profit of CNY97.3m a year-ago.
*HK PROPERTY VERY WEAK as investors dump the sector on escalating risk of social unrest as China's moves to impose a national security law for Hong Kong
CK ASSET (1113 HK -8.5%) despite the continued share buying by Li Ka Shing (Global) Foundation subsidiary which bought total of 8.09m shares between May 15 and 20SHKP (16 HK -8.3%) NWD (17 HK -9.9%) SINO (83 HK -10.4%).
EMPEROR INTL (163 HK -5.4%) launched the first batch of 30 units at Central 8 in Mid-Levels, at an average price of HK$29,820 psft.
*CHINA PROPERTY WEAK unfortunate timing for realtor Knight Frank to say that property sales in China continued to recover from a low of 22 sales on February 8 to almost 5,000 sales on May 11, aside from a dip due to the public holidays around Labour Day. This is broadly back to levels seen in December 2019. There is concern that the central govt may impose curbs to cool down recent land rush.
EVERGRANDE (3333 HK -6%) SUNAC(1918 HK -7%) COUNTRY GARDEN (2007 HK -7.2%) CH JINMAO (817 HK -6%) CR LAND (1109 HK -6.4%).
*PHARMA WEAK but some names saw interest on drug/vaccine development speculation.
KINTOR PHARMA (9939 HK) debut today, close at HK$ HK$21.3, +6.7% from the IPO price
CANSINO BIO (6185 HK +2%) rebound from yesterday's 15% drop, said in addition to developing its own vaccine together with the Chinese military, has partnered with Vancouver-based Precision NanoSystems Inc. to co- develop another potential vaccine,
*HK RETAILERS WEAK as democracy activists in Hong Kong called for protests against sweeping national security legislation introduced by China today. The activist group which organized historic marches last year that turned out hundreds of thousands of protesters, told reporters it is expected to call another huge rally. SASA INTL (178 HK -5.4%) CHOW TAI FOOK (1929 HK -7%) CAFE DE CORAL (341 HK -8.9%) TAI HING GROUP (6811 HK -8.8%) GIORDANO (709 HK -5.2%).
*COMMODITIES WEAK except CH RARE EARTH (769 HK +19%) may see a price hike speculation amid escalating CH-US tensions.

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Andrew+852 9106 4632