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StreetAccount Summary - Asian Market Recap: Nikkei +0.33%, Hang Seng (0.01%), Shanghai Composite +0.04% as of 04:10 ET

Aug 30 ,2023

• Synopsis:

  • Asian equities ended mostly higher Wednesday. Strong read through from US equities was the main catalyst but a late sell off in Hong Kong spoiled what had been another positive day for the Hang Seng; mainland China markets also dipped into the close but stayed positive. Gains for Japan, South Korea and Taiwan. Australia higher on inflation print. Southeast Asia generally positive, India extending early gains. US futures higher, Europe back at the flatline after a positive start. US dollar higher following overnight falls, yen, yuan and AUD under pressure. Treasury yields higher across tenors. Crude blends higher, industrial metals flat, wheat and rice futures higher again, industrials drifting.

  • Asia stocks higher on read through from Wall Street's rally overnight that came on the back of weak JOLTS and consumer confidence readings that hinted strongly at a weakening in the economy, and thus that the Fed may be done with rate hikes. The Nasdaq led the gainers, leading to a strong day for Asia's northern bourses and tech sectors in Hong Kong. Falling Treasury yields and a lower dollar fed into overnight spikes in local currencies, giving the region an extra tailwind. Greater China stocks still driven by policy response from Beijing; today, China's major banks said to be preparing to lower home loans and deposit rates, while media commentaries again mentioned prospects of further RRR cuts to support the yuan.

  • Elsewhere, Australian July inflation fell by more than expected, further eroding expectations of another RBA rate hike. Australian building approvals contracted sharply for a second month and quarterly growth in construction work slowed by more than expected. New Zealand building consents fell to weakest levels since 2020. BOJ board member Tamura suggested achieving inflation target is on the horizon but it was appropriate for now to maintain easing. The South Korean government confirmed smallest increase in fiscal spending in 18 years.

  • Seven & I (3382.JP) is to sell its Sogo & Seibu department store to Fortress on 1-Sep but faces rare Japanese worker strike. Toyota Motor (7203.JP) said its global sales reached record high in July, all manufacturing plants were operating again following systems glitch this week, plans 10% y/y production increase in September. Country Garden (2007.HK) will issue 351M new shares at HK0.77 per shares in a fresh attempt at shoring up its balance sheet. NIO (9866.HK) is to launch its first self-developed mobile phone in late September to improve appeal of its cars.

• Digest:

  • Chinese banks to cut existing mortgage rates to support economy:

    • China's largest banks are preparing to cut interest rates on existing mortgages of CNY38.6T ($5.3T) and deposits as latest state-directed measures to revive property sector and bolster faltering economy (Bloomberg). Reductions will only affect loans on first homes. Noted PBOC hinted such measures in July and early August. Meanwhile Bloomberg cited economists saying mortgage rate cuts as one of most concrete actions and would boost GDP growth by 0.1-0.2 ppt but fall short of "game changer" policies amid still-low confidence. Added unclear whether consumers would turn to consumption from savings out of lower mortgage payments. Sentiments weak among prospective homebuyers beset by bleak job prospects. Major lenders such as ICBC (1398.HK) and CCB (939.HK) set to cut deposit rates later this week for third time this year as banks try to balance between heeding authorities' directives and remaining profitable.

  • State newspaper says yuan to get support from PBOC, better economic fundamentals:

    • China Securities Journal quoted several analysts saying yuan to receive support from PBOC as authorities are determined to prevent excessive movement in exchange rate and improving economic fundamentals following a slew of pro-growth measures. Noted yuan's depreciation against dollar in August with both offshore and onshore passing key 7.3 level. Sinolink Securities economist attributed yuan's weakness to a rapid rise in dollar on Treasury yields spike. While CICC analyst noted PBOC's consistent stronger-than-expected daily fixing as part of counter-cyclical factors to stabilize currency, buying time for macroeconomic environment to improve. Added PBOC's sharply stronger fixing while cutting policy rates on 15-Aug suggested authorities "trying to manage exchange rate when it gets overly volatile". Noted Chinese companies' tendency to sell dollars for yuan towards year-end and pro-growth measures to provide support. Bloomberg also noted technical indicators including offshore-onshore yuan spread, USD/CNY upside premium, dollar-yuan short-term tail risk and 1M implied volatility showing short-term bearish sentiment toward yuan is fading.

  • Slowing Australian inflation bolsters odds of RBA remaining on hold:

    • Australian July inflation came in at 4.9%, lower than consensus 5.2% and June's 5.4%. Marked lowest read in the series' brief history going back to Oct-2022 and strengthened views RBA will keep rates on hold at coming meetings. Result driven largely by falls in food, fuel and holiday travel categories. When excluding volatile items inflation eased to 5.8% from 6.1% in June. Housing category put upward pressure on inflation with rental growth rising further amid low vacancy rates, and spike in electricity prices reflecting annual change in tariff rates (offset by government rebates). Discretionary goods categories mixed with clothing and footwear prices rebounding while furnishings and household equipment declining. Dovish market reaction to the data with Australian yield curve bull steepening and futures pricing in 60% chance of RBA remaining on hold through year-end.

  • China spotlight turns to Country Garden earnings:

    • Reuters previewed Country Garden (2007.HK) H1 earnings scheduled to report Wednesday. Attention was renewed after missing two dollar coupon payments earlier this month. On Tuesday, the company proposed adding a 40-day grace period for the repayment of a CNY3.9B private onshore bond due Saturday. Creditors will have until Thursday to approve a proposal to extend the full repayment by three years. Noted total liabilities were $194B at 2022-end and has already flagged a H1 net loss of up to CNY55B ($7.55B), expanding from a CNY6.7B loss in 2H22. Immediate focus on details of short-term debt and new bank loans to better understand Country Garden's cashflow and a company official said most of its funds are locked up in escrow accounts of project contractors to ensure delivery of homes. JPMorgan has estimated it would cost about CNY316B to finish all the company's projects under construction, including both sold and unsold flats. Article noted there will be no meetings with analysts and the media after the earnings announcement.

  • China IPO curbs seen hampering financing:

    • Reuters discussed takeaways from the surprise CSRC announcement of slower IPO approvals in an attempt to bolster the secondary market, though measures expected to cloud fundraising of hundreds of companies and will weigh on the economy. Article noted that new share sales in mainland China had been one of the few bright spots in the financial sector this year, as geopolitical tensions and tightened regulatory curbs prompted prospective companies to choose home bourses over offshore stock exchanges. Dealogic data shows $39.7B worth of IPOs YTD, down from $68.2B a year earlier though still compares favorably with the $13.1B in the US. More than 650 companies are waiting to list on the Shanghai and Shenzhen bourses. Meanwhile, bond markets are difficult and expensive for private companies due to spillover effects of a deepening property sector debt crisis. Combined with diminishing appetite for China investments among private equity firms, bankers and analysts said this will leave fewer viable alternatives for capital raising and weigh on near-term business plans. Other comments suggested slowing the pace of IPOs will have little impact, and latest measures go against IPO reforms earlier this year, harkening back to the old system.

  • Notable Gainers:

    • +1.9% 916.HK (China Longyuan Power Group): reports H1 net income attributable CNY5.03B vs StreetAccount CNY4.73B

    • +1.0% 7203.JP (Toyota Motor): production plan for Sep-Nov reportedly expects 10% y/y increase; reports July global production +14.6% y/y to 809,400

    • +0.8% 1810.HK (Xiaomi): reports Q2 adjusted net income CNY5.14B vs year-ago CNY2.08B, revenue CNY67.35B vs FactSet CNY65.39B

    • +0.3% 2318.HK (Ping An Insurance (Group) Co. of China): reports H1 operating profit attributable CNY81.96B vs StreetAccount CNY79.75B

  • Notable Decliners:

    • -10.5% 1579.HK (Yihai International Holding): reports H1 revenue CNY2.62B, (3%) vs year-ago CNY2.69B

    • -7.5% 9866.HK (NIO Inc): reports Q2 adjusted EPADS (CNY3.70) vs FactSet (CNY2.96), revenue CNY7.19B, (25%) vs year-ago CNY9.57B

    • -3.3% 2007.HK (Country Garden Holdings): enters subscription agreement to issue 351M shares at HK$0.77/share

    • -2.7% 011200.KS (HMM): Hapag-Lloyd reportedly no longer pursuing acquisition of HMM stake

• Data:

  • Economic:

    • Japan

      • Consumer confidence index 36.2 vs consensus 37.5 and 37.1 in prior month

    • Australia

      • July CPI +4.9% vs consensus +5.2% and +5.4% in June

      • July building approvals (8.1%) vs consensus (0.5%) and (7.7%) in June

      • Q2 construction work done +0.4% q/q vs consensus +0.9% and +1.8% in Q1

    • New Zealand July

      • Building permits m/m (5.2%) versus +3.4% in prior month

  • Markets:

    • Nikkei: 106.49 or +0.33% to 32333.46

    • Hang Seng: (1.17) or (0.01%) to 18482.86

    • Shanghai Composite: 1.25 or +0.04% to 3137.14

    • Shenzhen Composite: 7.25 or +0.37% to 1958.88

    • ASX200: 87.20 or +1.21% to 7297.70

    • KOSPI: 9.06 or +0.35% to 2561.22

    • SENSEX: 332.15 or +0.51% to 65407.97

  • Currencies:

    • $-¥: +0.59 or +0.41% to 146.4690

    • $-KRW: +5.54 or +0.42% to 1324.1400

    • A$-$: (0.00) or (0.34%) to 0.6457

    • $-INR: +0.16 or +0.19% to 82.7720

    • $-CNY: +0.01 or +0.14% to 7.2910