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StreetAccount Summary - Asian Market Recap: Nikkei (0.55%), Hang Seng (2.05%), Shanghai Composite (1.00%) as of 04:10 ET

Aug 18 ,2023

• Synopsis:

  • Asian equities ended Friday weaker once again as the risk-off mood continues. Losses greatest in Hong Kong, that shed another 2.0% with mainland bourses also down by varied amounts. Tokyo, Seoul and Taipei all lower and ended down for the week. Australia closed a handful of points higher. Southeast Asia all down, India extending morning losses. US futures now lower, Europe opened lower as it caught up with a late selloff on Wall Street. US dollar lower, gains for yen, yuan. Treasury yields down at the long end, higher at the short. Crude types flat. Precious metals higher, industrial metals including iron ore higher.

  • Asia catalysts remain embedded with developments in China however headwinds also coming from Wall Street where the Treasury selloff and subsequent strength in the dollar caused emerging market investors to pause once again. Treasury yields directionless for much of the trading day in Asia trading today but the 10Y closed last night at 16-year highs while other global sovereign bond yields are also touching multi-month or multi-year highs. Notably, this club excludes China and Japan, with their respective currencies seen weakening again over the week as a follow through, albeit with some respite today.

  • China's property crisis continues with Evergrande filing for a technical bankruptcy in New York. Default concerns continue around Country Garden while commentators noted how even state developers are warning of major losses now as the sector reels from an ongoing slump in home sales. Mainland Properties index down almost 8% this week to its lowest since Nov-2022.

  • The yuan pushed above its 16-year low overnight with focus today on the daily reference rate after the PBOC implemented a much stronger-than-expected fixing, signaling a growing discomfort with the currency's depreciation in Beijing. State banks have also been reportedly selling dollars and Bloomberg noted officials are mulling more drastic measures such as cutting FX RRR. Separately this week, continued reports of China ETF buying in bulk by China's state-backed funds and banks gave some support for mainland stocks, as did today's revelation that stocks on the tech-based Star Board were being encouraged to buy back shares.

  • Softbank ( 9984.JP ) has lined up 28 banks as underwriters for the listing of its ARM unit later this year. China Evergrande ( 3333.HK ) filed for Chapter 15 bankruptcy protection in New York although commentators were quick to point out this is often done prior to a restructuring. Celltrion ( 068270.KS ) to merge with Celltrion Healthcare ( 091990.KS ) by issuing 0.45 Celltrion shares per one Celltrion Healthcare share. Hapag-Lloyd ( HLAG.GR ) is considering an offer for HMM ( 011200.KS ).

• Digest:

  • Growing number of China state developers warn of major losses:

    • Bloomberg, citing corporate filings, reported 18 out of 38 state-owned property developers listed in Hong Kong and the mainland reported preliminary losses in H1, up from 11 that warned of full-year losses in 2022. Noted state builders are suffering the effects from the two-year housing slump that has weakened the economy and triggered dozens of defaults by private peers, with speculation that Country Garden (2007.HK) may be next. Also hamstrings the ability of SOEs to support the market by taking over incomplete projects to ensure they are delivered to homebuyers. Some state-owned developers cited declining gross profit margins and heavier provisions to write down asset values stemming from the housing woes. Highlighted the list includes some of the biggest names, as well as firms in economically stronger cities. Bloomberg Intelligence credit analyst suggested SOEs may be absorbing the brunt of write-downs now to set up a foundation for better years ahead. Said the key is whether they can still receive liquidity support from banks and smaller firms would be treated on a case-by-case basis.

  • PBOC fixes yuan midpoint with strongest bias on record:

    • PBOC set daily yuan fixing with strongest bias on record on Friday, signaling central bank's growing unease with pace of depreciation (Bloomberg). Continues series of actions this week have failed to halt yuan's descent towards 16-year lows. In addition, China's state banks have reportedly been selling dollars to bid up yuan. Bloomberg noted authorities told state banks to step up their intervention and are mulling actions such as lowering banks' FX RRR. Authorities probing whether speculative activity is fueling yuan's weakness. PBOC also announced bill sale in Hong Kong and has other options available to it include tightening liquidity in offshore market by hiking cost of betting against yuan. Still, there remain doubts whether measures can arrest yuan's weakness, particularly given pressures it is facing from slowing Chinese economic growth, property market contagion fears, capital outflow risks, PBOC easing speculation and widening US-China rate differentials.

  • China Evergrande files for bankruptcy protection in US:

    • Press reported China Evergrande (3333.HK) filed for Chapter 15 bankruptcy protection in New York (Bloomberg, Reuters). References restructuring proceedings being carried out in Hong Kong and the Cayman Islands. Its Scenery Journey unit also filed for Chapter 15 protection, along with affiliate Tianji Holdings. Noted that international debt-restructuring deals sometimes require a Chapter 15 filing in the course of finalizing a transaction. Articles recapped the Evergrande saga -- After proposing a plan in March, Evergrande in April disclosed it didn't yet have the level of creditor support needed to proceed. In July, it received court approval to hold votes on the deal and meetings are scheduled for later this month. Evergrande recently reported liabilities of $330B and a combined $81B loss for 2021/22. Recalled the company first defaulted on a dollar bond in December 2021 following months of uncertainty about its finances. That event helped set off the initial wave of concerns about China's property sector.

  • PBOC stays the course, but may be hinting at further action:

    • PBOC policy implementation report for Q2 largely reiterated broad objectives. First on the list was efforts to maintain reasonable growth in money and credit, explicitly noting the comprehensive use of its toolkit including RRR cuts, re-loans/re-discounts, MLF and OMO. Key phrase stipulated prudent monetary policy must precise and powerful. Flagged a variety of tools will be comprehensively used to maintain reasonable and sufficient liquidity. Pledged to adapt to new supply-demand developments in the real estate market, adjust and optimize real estate policies in a timely manner, and promote the stable and healthy development of the market. Risk prevention, rate reforms, support for small business remain a priority. Expressed commitment to stabilize expectations in FX, maintain yuan stability and resolutely prevent the risk of FX rate overshoot. Broader assessment re-acknowledged complications in the international environment while domestic challenges include insufficient demand, operating difficulties for some enterprises, and many hidden risks in key areas. Still, macro commentary remained sanguine, citing stability in H1 macro data (credit, GDP, CPI) while noting lending rates have declined significantly. Recalled yuan momentum swings from May to July (but not August) and described FX flows as rational and orderly with market expectations basically stable.

  • Malaysia's economy grows at its slowest rate in three years over Q2:

    • Malaysia's economy grew 2.9% in Q2 versus consensus forecast of 3.3% and Q1's 5.6%. Was seventh successive quarter of growth, but softest in sequence. On q/q basis, GDP expanded 1.5% from 0.9% growth in Q1 over Q4. Bank Negara Malaysia said FY 2023 growth likely to come in at lower end of forecast 4.0-5.0% range. Growth driven by improving labor market, domestic consumption, higher tourism activities, that offset slower export growth. Noted Q2's growth skewed by high base effect from 2022 when economy reopened following Covid shutdown. Bank said headline inflation during Q2 moderated to 2.8% from Q1's 3.6%, core inflation also declined. Governor Datuk Abdul Rasheed said for remainder of year, growth expected to be moderate amid external headwinds. Added economy subject to downside risks stemming from weak global growth (NewStraitsTimes). Separate data Friday showed Malaysia exports falling for fifth straight month in July as petroleum products shipments fell sharply.

  • Notable Gainers:

    • +5.0% 145020.KS (Hugel Inc): GS Group consortium reportedly looking at raising stake to over 50% from 43%

    • +4.7% 068270.KS (Celltrion): to merge with Celltrion Healthcare by issuing 0.4492620 Celltrion shares per 1 Celltrion Healthcare share

    • +0.6% 883.HK (CNOOC): reports H1 net income attributable CNY63.76B vs StreetAccount CNY63.00B, revenue CNY192.06B vs StreetAccount CNY183.61B

    • +0.0% 3377.HK (Sino-Ocean Group Holdings): unit reportedly remits CNY75.0M interest on CNY1.50B onshore bond maturing on 19-Aug-25

  • Notable Decliners:

    • -5.7% 068760.KS (Celltrion Pharm): clarifies that it is not included in the merger transaction of Celltrion businesses announced yesterday

    • -5.5% 9626.HK (Bilibili): reports Q2 revenue CNY5.30B vs FactSet CNY5.31B; guides FY revenue CNY22.5-23.5B vs prior guidance CNY24.0-26.0B and FactSet CNY24.20B

    • -5.0% 992.HK (Lenovo Group): reports Q1 net income attributable $177M vs StreetAccount $225.4M, revenue $12.90B vs StreetAccount $13.52B

    • -1.0% 011200.KS (HMM): Hapag-Lloyd reportedly considering bidding for HMM

• Data:

  • Economic:

    • Japan July

      • Nationwide core CPI +3.1% y/y vs consensus +3.1% and +3.3% in prior month

        • CPI excl. fresh food & energy +4.3% y/y vs consensus +4.3% and +4.2% in prior month

        • Overall CPI +3.3% y/y vs consensus +3.3% and +3.3% in prior month

  • Markets:

    • Nikkei: (175.24) or (0.55%) to 31450.76

    • Hang Seng: (375.78) or (2.05%) to 17950.85

    • Shanghai Composite: (31.79) or (1.00%) to 3131.95

    • Shenzhen Composite: (34.04) or (1.72%) to 1950.26

    • ASX200: 2.10 or +0.03% to 7148.10

    • KOSPI: (15.35) or (0.61%) to 2504.50

    • SENSEX: (319.34) or (0.49%) to 64831.68

  • Currencies:

    • $-¥: (0.52) or (0.35%) to 145.3180

    • $-KRW: (0.85) or (0.06%) to 1338.9000

    • A$-$: (0.00) or (0.17%) to 0.6403

    • $-INR: 0.00 or 0.00% to 83.0960

    • $-CNY: +0.00 or +0.03% to 7.2838