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StreetAccount Summary - Asian Market Recap: Nikkei (1.70%), Hang Seng (3.02%), Shanghai Composite (0.54%) as of 04:10 ET

Jul 06 ,2023

• Synopsis:

  • Asian equities ended sharply lower Thursday. MSCI Asia-ex Japan index down 1.6%, dragged lower by Hong Kong that fell almost 3% on banking sector falls. Mainland China benchmarks also lower. Australia, South Korea and Taiwan all down sharply, Southeast Asia mostly lower, India and Indonesia only two benchmarks with modest gains. Japan closed sharply lower. US futures lower, Europe gapping down at the open. US dollar down, yuan flat, yen notably stronger, AUD also higher. Oil futures lower on worries over China growth projections, precious metals flat, industrial metals seeing a sharp correction.

  • Asia assets turning steeply lower Thursday following a weak handover from the US and Europe overnight. US equities were rangebound but in the bond market, Treasuries sold off again with the yield curve steepening further, and the 10Y yield back near 4.0% as investors digested Fed meeting minutes from last week. Yields higher again in Asia trading Thursday. Fed fund futures indicate an 88% chance of a hike later this month and a roughly 50/50 chance of a further 25 bps hike by November. Weak data out of Europe, including a revision to June PMIs to reflect a contraction in eurozone, also weighed just as UK 10Y gilt yields spiked to a 'Truss-era' 4.5% on expectations of future BoE hikes.

  • In Asia markets, Chinese banking stocks under pressure with Hang Seng mainland banks index down more than 6% on a broker downgrade. Domestic banks also said to have stopped purchasing bonds issued in Shanghai Free Trade zone amid increased regulatory scrutiny on local government financing vehicles. Treasury Secretary Yellen arrives in China for talks with her counterpart but no substantive breakthroughs expected. PBOC-backed state media vowed China has ample tools to stabilize yuan even in "panic" scenario. Australian trade surplus widened amid jump in commodity exports. Malaysia's central bank held policy rate steady as widely expected.

  • Huabao International (336.HK) deputy CFO arrested on bribery allegations just a day after company's CEO was released from residential surveillance. Xpeng Motors (9868.HK) president said he expects deliveries to grow significantly in H2 post the launch of its G6 model. Foxconn (Hon Hai 2317.TT) chairman has held talks with mid-level employees at Sharp (6753.JP), talked over the relationship between the two companies after it took a TWD17.3B ($553M) write down on its 34% stake. TSMC (2330.TT) said it sees no direct impact on production from China's rare metals export ban. Singapore Post (S08.SP) may be permitted to raise postage rates following sharp decline in volumes since the Covid pandemic; shares sharply higher.

• Digest:

  • China banking stocks tumble on broker downgrade, halt to LGFV bond buying:

    • Hong Kong-listed Chinese banking shares sharply lower Thursday with Hang Seng Mainland Banks Index down 5.8% as Goldman Sachs downgraded top mainland banks and on reports Chinese banks have stopped buying bonds issued by Shanghai Free Trade Zone (Bloomberg). Reuters noted Goldman downgraded Agricultural Bank of China (1288.HK) to Sell from Neutral, ICBC (1398.HK) and Industrial Bank (601166.CH) to Sell from Buy. Noted Bank of Communications (3328.HK) and Hua Xia Bank (600015.CH) among Sell calls too. Goldman said investors worrying about lenders' exposure to local government debt, earnings risk, and diverging fortunes among individual banks. Added margins already squeezed from interest rate cuts. Meanwhile SecuritesTimes noted Chinese brokers are more optimistic on China banks. Said many expect banking fundamentals to recover in H2 with NIM and new bad debt to stabilize, leading to improving revenues and profits. Noted institutional holdings and banking stocks valuations already around historical lows.

  • PBOC-backed newspaper says China has ample tools to stabilize yuan:

    • Bloomberg cited a Financial News commentary that said China has ample tools to stabilize the foreign-exchange market even if the yuan enters a "panic" slide amid PBOC's ongoing campaign to reassure investors amid declines in the yuan that recently took it toward its weakest in 15 years against the dollar. Specified toolbox includes FX risk reserves ratio, FX deposit reserve ratio, counter-cyclical factor used in the daily yuan reference rate, and adjustment of macroprudential factors for cross-border financing. Article attributed yuan weakness since mid-May to short-term factors related to China's economic recovery not meeting expectations in the market. Defended the case for yuan stabilization (even appreciation) citing sound economic recovery trend and policy support. Recall PBOC Q2 MPC statement said supply-demand conditions in FX markets basically balanced as current account maintains a stable surplus and FX reserves sufficient and described yuan volatility as symmetric.

  • Malaysia central bank holds steady on rates as ringgit recovers:

    • Bank Negara Malaysia's MPC committee kept its overnight policy rate steady at 3.0% to follow May's surprise hike. Bank said growth outlook remains subject to downside risks from slower growth in developed economies, higher inflation, sharp tightening in financial market conditions; upside risks from domestic factors including tourism arrivals, faster infrastructure implementation. Decision as expected with pressure recently eased on BNM to hike further; recently intervened in forex market to support ringgit that had fallen to record lows, offsetting pressure for bank to defend currency with rate hike. Malaysia government also decided to retain electricity tariffs for domestic users into H2, easing a potential source of inflation risk. Follows May headline inflation 2.8% and core inflation 3.5%. Political pressure also building with state polls due in August while today's meeting was also first chaired by new governor Abdul Rasheed Ghaffour who only took up his role last week (Bloomberg).

  • China's Finance Ministry to speed up LGSB issuance with stronger oversight:

    • SCMP cited a recent speech from Finance Minister Liu Kun (published Tuesday though delivered last week) for the 2022 budget report indicating the ministry would supervise and accelerate the issuance of local government special bonds (LGSB) to support infrastructure investment. Added that efforts would be made to prevent "blind" expansion of investments and pledged "strict" supervision of local government debt, while warning the ministry will "expose" authorities that violate debt rules. Statement comes amid growing concerns over the sustainability of local government debt. In particular, concerns about 'hidden' debt were renewed after the National Audit Office reported last week that dozens of regional and local governments had inflated fiscal revenues and added to hidden debt last year. Article noted there are no official figures of the size of China's hidden debt, but analysts have estimated that it could be somewhere between CNY30T-50T. Anecdotal evidence indicated little progress.

  • Japan shunto final tally confirms pay raises above 3%:

    • Nikkei cited Rengo's final aggregates from this year's shunto wage negotiations, which yielded average pay raises of 3.58%, notably up 1.51 ppt from last year's talks, marking the highest increase since the 3.90% awarded in 1993. Against the backdrop of strong inflationary pressures, focus shifts to sustainability. Closely watched base wage component rose a record 2.12% going back to 2015, up 1.49 ppt from last year. Attention has also been on small businesses, where labor unions with up to 300 members saw comparable pay raises of 3.23%, topping 3% for the first time in 29 years. Article discussed the impact of elevated inflation, leading to negative real wage growth and pushing corporate costs higher. Also noted concerns that this year's pay raises may be a one-off, consistent with BOJ board member discussions looking ahead to next year's shunto to confirm sustainability that would meet a key requirement for the achievement of the inflation target.

  • Notable Gainers:

    • +5.5% S08.SP (Singapore Post): Singaporean government reportedly may allow for postal rate hike

    • +4.4% 9868.HK (XPeng, Inc.): president says deliveries expected to grow significantly in H2 due to G6 launch

    • +2.4% 5406.JP (Kobe Steel): reportedly looking to hike payout ratio to 25% from 15%

    • +1.5% 500325.IN (Reliance Industries): Reliance Jio Infocomm reportedly to sign $1.7B (€1.57B/INR139.80B) contract with Nokia

  • Notable Decliners:

    • -19.5% 006360.KS (GS Engineering & Construction): expected to incur KRW1.3T cost in apartment reconstruction

    • -13.3% 336.HK (Huabao International Holdings): deputy CFO Choy Man Har arrested by ICAC for bribery

    • -2.9% 1918.HK (Sunac China Holdings): reports June contracted sales value CNY7.02B; StreetAccount notes year-ago figure was CNY14.04B

    • -2.8% 2317.TT (Hon Hai Precision Industry): reports Q2 revenue NT$1.303T vs FactSet NT$1.352T

    • -2.3% 8031.JP (Mitsui & Co.): to acquire 49% equity interest in Kasso MidCo; terms undisclosed

• Data:

  • Economic:

    • Australia May

      • Trade balance A$11.79B vs consensus A$10.85B and revised A$10.45B in April

        • Exports +4.4% m/m vs (5.0%) in April

        • Imports+2.5% m/m vs (1.6%) in April

  • Markets:

    • Nikkei: (565.68) or (1.70%) to 32773.02

    • Hang Seng: (577.33) or (3.02%) to 18533.05

    • Shanghai Composite: (17.37) or (0.54%) to 3205.57

    • Shenzhen Composite: (7.49) or (0.37%) to 2044.03

    • ASX200: (89.80) or (1.24%) to 7163.40

    • KOSPI: (22.71) or (0.88%) to 2556.29

    • SENSEX: 163.09 or +0.25% to 65609.13

  • Currencies:

    • $-¥: (0.66) or (0.45%) to 143.9820

    • $-KRW: (1.48) or (0.11%) to 1302.6700

    • A$-$: +0.00 or +0.23% to 0.6670

    • $-INR: +0.10 or +0.12% to 82.4980

    • $-CNY: (0.00) or (0.01%) to 7.2471