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StreetAccount Summary - Asian Market Recap: Nikkei +1.23%, Hang Seng (2.13%), Shanghai Composite (0.11%) as of 04:10 ET

Jul 24 ,2023

• Synopsis:

  • Asian equities finished mixed Monday. Greater China stocks at six-week lows with steep falls for the Hang Seng and specifically its property stocks. Small losses in Australia and Singapore, elsewhere brighter with small gains in Seoul and Taipei. India flat. Japan stocks gapped higher post yen weakening Friday after the close Friday amid BOJ comments on YCC. US futures soft, Europe opened slightly lower. US dollar higher although much of this against the euro, yen strengthened slightly, yuan weaker. Treasury yields a few points higher at the short end, lower at the long; JGB yields mostly lower. Crude oil lower, precious metals mixed, industrial metals under pressure.

  • Hang Seng saw a bleak start to the week as its property stocks plummeted on reports Country Garden had moved to refinance a loan just as more of its bond payments come due. Markets also reacted negatively to Politburo previews that downplayed stimulus expectations with targeted policy guidance more likely. Economists also anticipate modest cuts to RRR and lending rates. The NDRC today reiterated efforts to boost private investment in key sectors but the markets barely acknowledged the statement.

  • Japan benchmarks saw strong follow through from reports Friday that BOJ officials are unlikely to tweak its yield curve control any time soon, and which saw the yen weakened significantly post the equity market close. Japan flash PMI showed manufacturing activity softened slightly in July amid slump in new orders. Australian flash manufacturing PMI signaled deterioration in business conditions while services PMI swung to contraction. New Zealand trade surplus unexpectedly shrank amid sharp fall in exports to China.

  • Tokyo Steel Manufacturing (5423.JP) and South Korean steelmaker POSCO (005490.KS) posted quarterly earnings and outlook above expectations, both stocks significantly higher. BYD's (1211.HK) proposed $1B EV manufacturing facility in Hyderabad has been rejected by the India government. Country Garden (2007.HK) has moved to refinance part of a 2019 loan facility; shares and bonds sharply lower. China Evergrande's (3333.HK) restructuring plan will be heard by a Hong Kong court in September. Alibaba (9988.HK) said it will not sell any part of its one-third stake in Ant Group during the latter's upcoming share buyback. Samsung SDI (006400.KS) and Stellantis (STALAM.IM) have agreed to build a second US battery plant to start production in 2027.

• Digest:

  • Upcoming China Politburo meeting unlikely to roll out massive stimulus:

    • Bloomberg previewed China Politburo meeting which economists say will likely provide more pro-growth signals and support for private sector after Beijing's recent pledges. However authorities seen unlikely to deliver large-scale stimulus that markets were expecting to counter economic downturn. Noted Beijing highlights "quality of growth", rather than pace and resists old tactics to avoid over-stimulation and debt build-up. On fiscal policy, faster issuance of LGSBs likely. For monetary policy, analysts see trim of 10 bp in interest rates and 25 bp in RRR in H2, which was echoed in state-owned ChinaSecuritiesJournal which said Beijing has "sufficient room" for monetary policy. More easing of property controls also likely. Markets will keep close watch on more substantial moves on consumption boost after a slew of policies to bolster consumption in home appliances, furniture and automobiles announced, as state-owned EconomicDaily also called for more measures to expand domestic demand in H2.

  • China encourages private investment in some key sectors to boost growth:

    • Reuters reported China's economic planner NDRC unveiled measures that seek to promote, encourage and spur private investment in some infrastructure sectors and said it will strengthen financing support for private projects. NDRC said sectors including transport, water, clean energy, new infrastructure, advanced manufacturing and modern agriculture will be available for private capital to participate. Bloomberg noted projects worth total of CNY3.2T ($445B). Move follows top China leadership pledge to improve environment for private businesses and regulators' recent meet with global VC and PE firms (FT). NDRC said it is working with seven banks to establish a trial program for investment-loan cooperation and preparing list of private investment projects to guide loan support. Said qualified private investment projects be supported to issue infrastructure REITs. Added private firms encouraged to buy SOE's assets and use REITs to exit the investment.

  • Chinese property stocks under pressure amid concerns over debt, liquidity:

    • China property developers selling off in Asian trade Monday with Hang Seng Mainland Properties Index down more than 6% to an almost two-month low. Sector has faced sustained selling since beginning of July as an ongoing slide in contracted home sales heighten concerns around liquidity and debt. Latest scrutiny surrounds Country Garden (2007.HK) after company's efforts to refinance part of loan facility failed to address concerns around its liquidity position (SCMP, Reuters). With its shares trading at lowest since Nov-2022 and onshore bonds also down sharply, JP Morgan cut stock to underweight and predicts further 35% drop in its share price (Bloomberg). Upcoming Politburo meeting may flag measures such as relaxed home buying restrictions and more financing support for developers, but modest nature of policies announced so far have failed to gain much traction among investors.

  • YCC tweak expectations remain a small but significant minority:

    • Ahead of the July 27-28 BOJ meeting, consensus surveys have shown the proportion calling for a YCC tweak have ranged from 18% (Bloomberg) to 31% (Nikkei) albeit with varying sample sizes. Latter showed 8 out of 26 forecasting a revision this month, including 5 looking for a wider yield band, 2 for a shorter target yield, and 1 for a complete removal. Probability ranking has been little changed. Broader takeaway was that YCC revision expectations have receded as Governor Ueda has repeatedly reaffirmed a dovish policy stance. On the margins, Bloomberg indicated projections were pushed back from July with a cumulative 54% majority still anticipating a move by October. While Nikkei's main poll saw majority moving into FY24, conclusion was blurred by a narrower focus (n=10) that revealed 8 out of 10 were also skewed to a move by October. Reuters survey found 5 of 22 called for a July move and 11 by year-end. Despite increasing attention on this week's meeting, another Nikkei discussion indicated broader market impact of a YCC tweak expected to be limited, commensurate with the small scale of projected moves.

  • Japan FX chief Kanda makes rare comments on BOJ policy after Friday's yen selloff:

    • In a Reuters interview Friday, vice finance minister for international affairs Kanda suggested BOJ may tweak policy this week due to "signs of changes" in corporate behavior on wage growth and price rises. However, the direct quote, "various expectations and speculations are spreading about the possibility of some kind of tweak to monetary policy," appeared to be an observation about market speculation rather than hinting at any pressure from the government. However, Kanda told reporters Monday morning that recent inflation and wage rises were overshooting expectations, and BOJ is likely to revise up inflation forecasts based on available data so far though other sources see FY24/25 projections remaining largely unchanged (Reuters). In context, press attention on Kanda came after a sharp selloff in yen Friday evening. Kanda reiterated that Japan is monitoring foreign exchange moves with a sense of urgency and will consider "all options available" if yen moves become volatile (Kyodo) in response to a sharp selloff in yen Friday evening apparently in reaction to latest reports BOJ will keep policy unchanged this week.

  • Notable Gainers:

    • +21.4% 5423.JP (Tokyo Steel Manufacturing): reports Q1 operating income ¥12.29B vs FactSet ¥7.90B; revises H1 and FY guidance upward

    • +16.5% 005490.KS (POSCO): reports Q2 operating profit KRW1.326T vs preliminary 1.3T and StreetAccount KRW1.203T

    • +10.5% 003670.KS (POSCO Future M Co.): reports Q2 operating profit KRW52.14B vs FactSet KRW60.74B, revenue KRW1.193T vs FactSet KRW1.240T

    • +5.0% 7211.JP (Mitsubishi Motors): reports Q1 net income attributable ¥47.95B, +24% vs year-ago ¥38.56B; raises FY guidance

    • +1.1% 6758.JP (Sony): Peter Chernin's North Road, Banijay reportedly express interest in All3Media and Sony Pictures is "likely interested

    • +0.8% 4523.JP (Eisai): reportedly plans to launch trials for second Alzheimer's drug in 2024

  • Notable Decliners:

    • -3.0% 136.HK (China Ruyi Holdings): Shanghai Ruyi to acquire 49% stake in Beijing Culture for CNY2.26B in equity transfer deal

    • -1.8% 1347.HK (Hua Hong Semiconductor): 407.8M-share STAR Market IPO priced at CNY52.00/share

• Data:

  • Economic:

    • Japan July

      • Flash manufacturing PMI 49.4 vs 49.8 in prior month

        • Services PMI 53.9 vs 54.0 in prior month

        • Composite PMI 52.1 vs 52.1 in prior month

    • New Zealand June

      • Trade balance NZ$9M vs consensus NZ$235M and revised NZ$52M in May

        • Exports +1.3% vs +2.8% in May

        • Imports +14% vs +4.4% in May

    • Singapore June

      • CPI y/y +4.5% versus consensus +4.4% and +5.1% in prior month

        • Core CPI y/y +4.2% versus consensus +4.4% and +4.7% in prior month

  • Markets:

    • Nikkei: 396.69 or +1.23% to 32700.94

    • Hang Seng: (407.11) or (2.13%) to 18668.15

    • Shanghai Composite: (3.58) or (0.11%) to 3164.16

    • Shenzhen Composite: (7.53) or (0.37%) to 2004.30

    • ASX200: (7.50) or (0.10%) to 7306.40

    • KOSPI: 18.77 or +0.72% to 2628.53

    • SENSEX: (23.46) or (0.04%) to 66660.80

  • Currencies:

    • $-¥: (0.38) or (0.26%) to 141.4280

    • $-KRW: (4.42) or (0.34%) to 1282.2200

    • A$-$: +0.00 or +0.03% to 0.6737

    • $-INR: (0.08) or (0.10%) to 81.9170

    • $-CNY: +0.01 or +0.21% to 7.2026