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StreetAccount Summary - Asian Market Recap: Nikkei (0.06%), Hang Seng +4.10%, Shanghai Composite +2.13% as of 04:10 ET

Jul 25 ,2023

• Synopsis:

  • Asian equities ended mostly higher Tuesday. Hang Seng led the region as investors reacted positively to Beijing's latest support signals, mainland stocks also higher. Gains in Australia, South Korea and Taiwan as technology stocks rose, India slightly lower, Southeast Asia mostly higher although Thailand a notable underperformer. Japan's Nikkei flat, Topix slightly higher. US futures flat, Europe with a cautious open. US dollar flat, yuan and AUD strengthened. Treasury yields higher. Crude prices slipping, precious metals edged higher, industrial metals higher on China optimism. Cryptocurrencies down again with bitcoin staying well below $30K.

  • Asia markets pulled higher by more pledges of economic support from Beijing, this time from the Politburo that markets interpreted as carrying significantly more weight than promises made to date. The removal of the key phrase "housing is for living in, not speculation" interpreted as a positive pivot for the property sector despite the continued lack of detailed proposals, while there were other pledges for consumer and internet platforms. The result was a substantial rally in Hong Kong-listed property, internet & IT and consumption stocks, as well as second-ring Asia-based sectors such as South Korean exporters and Australian miners. EV manufacturers such as NIO also outperformed. China sovereign bond prices slipped sharply while onshore and offshore yuan found more support after overnight strengthening amid fresh reports state banks were selling dollars. Elsewhere, South Korea's Q2 GDP growth showed its economy easing away from recession, albeit very slowly. Indonesia's central bank kept its base rates unchanged, as expected. Thailand's political uncertainty continued amid confusion over upcoming PM vote in parliament.

  • Toyota Motor (7203.JP) and Guangzhou Automobile (2238.HK) have dismissed around 1K workers in China as their joint venture adjusts to declining sales in the country. Tencent (700.HK) is to become a majority shareholder in video games producer Techland but terms were undisclosed. BYD (1211.HK) and NIO (9866.HK) among the EV makers that could benefit from Beijing's promotion of EVs. Country Garden (2007.HK) almost wiped out Monday's steep losses on reports Beijing would provide support for property developers. Wesfarmers (WES.AU) said it would merge the business units of its budget department stories Kmart and Target to reduce losses amid persistently high inflation.

• Digest:

  • China equity benchmarks rally on policy support pledge:

    • Greater China equity markets rebounded significantly Tuesday, recovering from multi-month lows reached on Monday. Traders focused on politburo officials' pledge to ramp up policy support by boosting consumer demand, giving greater help for property sector (Reuters). Hong Kong-listed property stocks, consumer names gainied most. near the close, Hang Seng had gained 4.1%; mainland properties index surged 14.0% to more than erase yesterday's losses; Country Garden (2007.HK) up 18%, China Vanke (2202.HK) 13%. Internet giants Baidu (9888.HK), Alibaba (9988.HK), Tencent (700.HK) with strong gains on pledge to "drive healthy development of platform firms". Xpeng (9868.HK), NIO (9866.HK) and Li Auto (2015.HK) significantly higher on vow to boost auto consumption. Shanghai Composite more subdued 2.1% gain, Shenzhen also higher. Comes day after Golden Dragon index of New York-listed Chinese shares advanced most in six months post Politburo's pledge to boost economy. Yuan strengthened 0.6% Tuesday while China/commodity exposed currencies and equities around Asia also rallyied including Australian miners, South Korean exporters.

  • China Politburo statement contains reasons for optimism but lacks meaningful stimulus:

    • Bloomberg discussed analysts' reactions to the Politburo statement that signaled more support for the housing market alongside pledges to boost consumption and resolve local government debt. While stopping short of announcing any broad stimulus measures (which was expected), markets were still encouraged by reaffirmed pledge to implement "counter-cyclical" policy. Particular attention on signal for more housing market support as the statement dropped language stipulating that 'housing is for living in, not speculation.' Fits with an earlier Bloomberg report that authorities are considering easing home-buying restrictions in tier 1 cities. No surprises on fiscal policy where language was largely unchanged after a tightening stance in H1. While calling for faster issuance of local government bonds, there was no hint of an expanded quota. Monetary policy language was also consistent with previous statements - though the Politburo hinted that PBOC will roll out more targeted liquidity to support lending to favored sectors. In contrast, other press takeaways leaned bearish (FT, Reuters), highlighting authorities' acknowledgement of China's "tortuous" recovery from the pandemic, and lack of meaningful stimulus set to underwhelm investors.

  • South Korea GDP slightly ahead of expectations, but details soft:

    • GDP expanded 0.6% q/q in Q2, compared to consensus 0.5% and follows 0.3% in the previous quarter. However, details were mostly soft as private consumption and gross fixed capital formation were both negative. Capex in particular marked the second straight contraction. Exports dropped 1.8% q/q, though coming as some payback for sharp 4.5% in Q1. Yet a sharper 4.2% drop in imports took external demand contribution positive, forming the main growth driver. By sector, manufacturing grew for the second straight quarter, while agriculture rebounded sharply. Much of it negated by notable weakness in utilities and construction. Overall, subdued results were broadly consistent with expectations of languishing exports and consumption weighed down by high interest rates (Reuters). BOK's latest economic update 13-Jul indicated momentum leaned positive and 2023 GDP generally tracking the May forecast of 1.4%. However, overall CPI inflation expected to pick up again after August while core inflation to run slightly higher than prior projection.

  • BOJ inflation forecast updates continue to attract attention:

    • Bloomberg, citing people familiar with the matter, reported BOJ likely to consider a sharp upward revision to the FY23 inflation forecast at this week's MPM, while also discussing concerns about whether the upward trajectory is sustainable. Core inflation now seen upgrading to around 2.5%, compared to current 1.8%. However, projections for subsequent years expected to be largely unchanged to reflect a lack of confidence the bank can achieve its 2% inflation goal in a stable manner. Compares with economists' consensus forecast for FY23 to be revised up to 2.3%. Latest indications follow a Nikkei story earlier this month indicating BOJ projections would be in the 2% range for FY23, while noting FY24/25 could be around 2% (vs current 2.0%, 1.6% respectively). In response to Friday's late yen selloff, vice finance minister for international affairs Kanda noted market speculation surrounding BOJ policy and said inflation forecasts will probably be revised up given available data.

  • Bank Indonesia keeps base rates steady to support rupiah:

    • Bank Indonesia kept its 7D reverse repo rate unchanged at 5.75% as expected despite a widely anticipated Fed Reserve hike Wednesday and steadily weakening rupiah. Deposit facility rate also kept steady at 5.0%, lending facility at 6.5%. Bank said current rate level sufficient to ensure inflation stayed within target this year after falling to within target range in May. Policymakers had been under some pressure to cut rates given some evidence of deflationary trend but weakening rupiah seen as trumping price concerns. Economists said BI needed to support currency in wake of sharp drop in exports in past three months, and slowly shrinking dollar reserves (Bloomberg). Rupiah among underperforming Asia currencies this year as US rates continued to rise however, although consensus now shows BI's next move will be a rate cut, this said to be unlikely until expectations Fed done with its hiking cycle.

  • Notable Gainers:

    • +6.1% 700.HK (Tencent Holdings): to become majority shareholder of video game company Techland; terms undisclosed

    • +5.5% 1208.HK (MMG Ltd): reports Q2 copper production 81,516 tonnes, +153% y/y

    • +2.2% 1211.HK (BYD Co. Ltd.): China's Politburo says real estate policies should be adjusted appropriately, consumption of vehicles should be promoted

    • +2.1% 4528.JP (Ono Pharmaceutical): plans share buyback of up to ¥50B, to run from 1-Aug-2023 through 22-Mar-2024; Ono Pharmaceutical, Bristol Myers Squibb reach settlement with AstraZeneca over PD-L1, CTLA-4 patent case

    • +1.3% 6920.JP (Lasertec): guides FY net income ¥45.00B vs prior guidance ¥33.00B and FactSet ¥34.09B

    • +0.5% 3382.JP (Seven & i): reportedly to sell Sogo & Seibu to Fortress for around ¥210B on 1-Sep

  • Notable Decliners:

    • -7.6% 011200.KS (HMM): Harim-JLK Partners consortium reportedly to participate in bidding for HMM

    • -2.8% 002602.CH (Zhejiang Century Huatong Group): under CSRC investigation for potential violation of information disclosure regulations

• Data:

  • Economic:

    • South Korea Q2

      • GDP +0.6% q/q vs consensus +0.5% and +0.3 in prior quarter

        • GDP +0.9% y/y vs consensus +0.8% and +0.9% in prior quarter

  • Markets:

    • Nikkei: (18.43) or (0.06%) to 32682.51

    • Hang Seng: 766.25 or +4.10% to 19434.40

    • Shanghai Composite: 67.36 or +2.13% to 3231.52

    • Shenzhen Composite: 43.85 or +2.19% to 2048.15

    • ASX200: 33.30 or +0.46% to 7339.70

    • KOSPI: 7.93 or +0.30% to 2636.46

    • SENSEX: (190.25) or (0.29%) to 66194.53

  • Currencies:

    • $-¥: (0.11) or (0.08%) to 141.3710

    • $-KRW: (5.63) or (0.44%) to 1275.2100

    • A$-$: +0.00 or +0.31% to 0.6766

    • $-INR: +0.04 or +0.05% to 81.8690

    • $-CNY: (0.04) or (0.62%) to 7.1420