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StreetAccount Summary - Asian Market Recap: Nikkei +0.88%, Hang Seng (0.55%), Shanghai Composite (0.55%) as of 04:10 ET

Aug 31 ,2023

• Synopsis:

  • Asian equities ended mixed Thursday. Greater China opened brightly but closed in the red again to complete a miserable month for the country's equity markets. Losses for Seoul and Taipei, India lower as Adani stocks tumbled on a promotor investor report, and most of Southeast Asia lower too. Positive closes for Australia and Japan, the latter of which ended at a four-week high. US futures positive, Europe opened with solid gains. US dollar slightly higher, yen stronger, other Asia currencies flat. Treasury yields curve steepening. Crude blends higher, industrial and precious metals flat.

  • Weak economic data being seen as good news Wednesday in the US, leading to another mini rally on Wall Street. A weak ADP jobs report and a downwardly-revised GDP print reinforced hopes the Fed is closer to the end of its rate hike cycle, and more than offset worries over future lower earnings. The data caused Treasury yields to drop, equities to rally, and the US dollar to fall, at least giving battered Asia currencies some support to end the month. But the US rally gave way to uncertainty in Asia as investors continued to grapple with developed market strength versus China's weakness.

  • Weak economic data interpreted as bad news in China. Manufacturing PMI declined for a fifth consecutive month while growth in non-manufacturing activity slowed by more than expected. The Hang Seng, which had opened brightly, fell on the news and ended the day lower despite some interpretations of the PMIs suggesting the worst of the weakness may be over. Adding to the pressure, property group Country Garden warned over a potential default and raised questions over its future, and banks sold off as multiple lenders confirmed they would cut interest rates.

  • In other macro developments, Japan industrial production fell by more than expected amid weakness in production equipment but retail sales topped forecasts. South Korea industrial production shrank again, marking longest stretch of declines on record. New Zealand business confidence hit mid-2021 highs as inflation pressures eased. Australian private capex beat as investment intentions firmed.

  • Baidu (9888.HK) and SenseTime (20.HK) became among the first Chinese companies to receive official approval for their generative AI services for public rollout. China Vanke (2202.HK) said H1 profits slid 19% to CNY9.9B ($1.4B) with a significant drop in gross margin, canceled proposed issuance of A Shares on Shenzhen board. Country Garden (2007.HK) posted a record H1 loss of $6.72B, warned of possible debt default and raised concerns over staying in business. Sino-Ocean (3377.HK) won a bondholder vote to extend repayment of a CNY2B ($274M) note through to next August having lost a previous vote. Adani Group stocks (Adani Enterprises, 512599.IN) fell sharply on report offshore funds linked to group promotors were allegedly building stakes in Adani listed stocks against stock exchange rules.

• Digest:

  • China manufacturing PMI contraction eases further as service growth softens:

    • Official manufacturing PMI was 49.7 in August, above consensus 49.4 and follows 49.3 in the previous month. Index continued to move off its 48.8 trough in May, though remained in contraction territory for the fifth consecutive month. Narrow majority 12 of 21 sectors contributed positively. NBS highlighted bright spots were output and new order indices for agriculture, food processing, chemicals and autos were at least 53.0. All industry sizes logged some improvement, though large firms remain the only segment in expansion. Output accelerated as new orders swung to marginal expansion for the first time since March. Export drag eased somewhat, though remains well in contraction. Inflation pressures rebounded as a notable pickup in input prices translated to the first rise in output prices since February. Finished goods inventories declined for a sixth month. Easing manufacturing headwinds contrasted with waning nonmanufacturing growth. Nonmanufacturing PMI fell to 51.0, marking the lowest expansion YTD, vs consensus 51.1 and 51.5 in July. Mainly reflects steady slowing in services, outweighing a reacceleration in construction. Composite PMI edged up to 51.3 from 51.1. NBS concluded lack of demand remains the main issue and cyclical momentum needs to be further consolidated.

  • Chinese banks to cut deposit interest rates from 1-Sep:

    • Multiple Chinese lenders are set to slash deposit rates from 1-Sep, second round of cuts in less than three months (Securities Times, 21^st Century Business Herald). Magnitude of reductions will be larger for longer-term deposits with 3Y and 5Y rates to be cut by 25 bp while 1Y by 10 bp and 2Y by 20 bp. Move widely expected as deposit rate adjustment took cues from 10Y sovereign bond yield and 1Y LPR. Noted 1Y LPR cut by 10bp to 3.45% on 20-Aug. Came as banks preparing to cut interest rates on existing mortgages as latest state-directed measure to stimulate economy (Bloomberg). In addition Shenzhen and Guangzhou, two of four top-tier cities, announced easing rules for mortgage down payment requirements with more homebuyers considered as first-time buyers (Bloomberg). Lower deposit rates may help lenders protect margins as banks' NIMs at 1.74% in H1, which were under downward pressure warned by PBOC in Q2 monetary policy report. Cutting rates seen necessary for risk management and financial stability. Analysts also noted decision to hold 5Y LPR in August was intentional to stabilize margins.

  • China markets cap off volatile August (but investors hope for better September):

    • Benchmark China indexes suffered heavy losses over August, but head into September on a more stable footing following this week's rebound. Renewed momentum comes as authorities step up policy support efforts, which included cut to stamp duty on stock trades, restrictions on some share sales, relaxed mortgage rules for homebuyers and lower lending and deposit rates. CSI 300 trading at forward P/E of 11x, less than three-year average 13x and representing largest discount to MSCI Asia since early 2021 (Bloomberg). Onshore selling pressure driven in part by foreign investors via Hong Kong link. At same time, onshore investors net buyers of Hong Kong stocks for eight straight sessions prior to today, longest streak since April (Bloomberg). Still, strategists remain bearish with Morgan Stanley and Goldman Sachs recently cutting index price targets (Bloomberg). China's economic fundamentals remain weak and absence of major stimulus is a key component of the bearish narrative.

  • PBOC pledges to improve funding for private firms:

    • PBOC hosted a symposium with other regulators, financial institutions and private enterprises Wednesday, vowing to improve their access to funding. Bloomberg noted meeting second time in August central bank held talks with such audiences following top leaders outlining 31 measures to support private sector in July. Governor Pan Gongsheng said country will unlock financing channels of equities, bonds and loans for private businesses. Added support for sector's bond financing to be expanded to attract more institutional investors. Yicai quoted a senior PBOC official saying first draft of policy measures for financial support to private businesses is ready and will be unveiled soon. Authorities will make it a "clear goal" that share of loans to private firms in total lending shall continue to rise. Financial institutions required to set annual goals for serving private businesses, which will carry more weight in performance review. CSRC official said it will support qualified private firms to go public and carry out equity refinancing.

  • Anti-corruption group says paperwork reveals hidden Adani investors:

    • Financial Times said documents obtained by Organized Crime and Corruption Reporting Project (OCCRP) appear to show offshore stake-building operations in Adani Group companies by associates of Vinod Adani, brother of Group's founder Gautam Adani and member of Adani 'promotor group' not permitted to own stake above 75%. Noted India's listing rules requires 25% of a company's shares must be free float. Article questions Adani links to India PM Narendra Modi, said Securities and Exchange Board of India (SEBI) received evidence of offshore ownership in 2014 but regulatory interest waned post Modi's election to PM role. Documents showed two individuals with longtime business ties to Adani family, who also served as directors, shareholders in Adani Group companies, spent years trading hundreds of millions of dollars in Adani Group company stock through investment funds based in Mauritius and Bermuda. OCCRP report said funds kept parallel set of books, and "Russian doll" of companies and funds created to mask stake building in listed Adani group companies.

  • Notable Gainers:

    • +6.9% 1119.HK (iDreamSky Technology Holdings): reports H1 adjusted net income CNY201.8M vs year-ago (CNY51.0M); to conduct buyback of up to HK$200M

    • +6.6% 6878.HK (Differ Group Auto): updates on restructuring, expecting scheme of arrangement in upcoming months

    • +5.6% 2319.HK (China Mengniu Dairy): reports H1 net income attributable CNY3.02B vs StreetAccount CNY3.07B

    • +0.0% 2007.HK (Country Garden Holdings): reports H1 revenue CNY226.31B, +39% vs year-ago CNY162.36B

  • Notable Decliners:

    • -12.3% 337.HK (Greenland Hong Kong Holdings): reports H1 net income attributable CNY81.9M, (23%) vs year-ago CNY105.9M

    • -7.4% 3908.HK (China International Capital): reports H1 IFRS net income attributable CNY3.56B, (7%) vs year-ago CNY3.84B

    • -3.6% 541450.IN (Adani Green Energy): documents reportedly raise further questions about Adani holders and Hindenburg's allegations

    • -3.3% 010130.KS (Korea Zinc Co.): launches 1.0M-share placement at KRW504,333/share to raise KRW527.24B; funding will be raised from HMG Global LLC

• Data:

  • Economic:

    • China August

      • Official manufacturing PM 49.7 vs consensus 49.4 and 49.3 in prior month

        • Non-manufacturing PMI 51.0 vs consensus 51.1 and 51.5 in prior month

    • Japan July

      • Industrial production (2.0%) m/m vs consensus (1.4%) and +2.4% in prior month

        • METI survey projections +2.6% in August, +2.4% in September

      • Retail sales +2.1% m/m vs consensus +0.8% and revised (0.6%) in prior month

        • Retail sales +6.8% y/y vs consensus +5.5% and revised +5.6% in prior month

    • Australia

      • July private sector credit +0.3% m/m vs consensus +0.3% and revised +0.3% June

      • Q2 private capital expenditure +2.8% q/q vs consensus +1.0% and revised +3.7% in Q1

    • New Zealand August

      • ANZ Business Confidence (3.7) vs July (13.1)

    • South Korea July

      • Industrial production (2.0%) m/m vs consensus (1.0%) and revised (1.5%) in prior month

        • Industrial production (8.0%) y/y vs consensus (6.0%) and revised (5.9%) in prior month

  • Markets:

    • Nikkei: 285.88 or +0.88% to 32619.34

    • Hang Seng: (100.80) or (0.55%) to 18382.06

    • Shanghai Composite: (17.26) or (0.55%) to 3119.88

    • Shenzhen Composite: (11.40) or (0.58%) to 1947.48

    • ASX200: 7.60 or +0.10% to 7305.30

    • KOSPI: (4.95) or (0.19%) to 2556.27

    • SENSEX: (117.73) or (0.18%) to 64969.52

  • Currencies:

    • $-¥: (0.46) or (0.31%) to 145.7880

    • $-KRW: (0.89) or (0.07%) to 1322.9000

    • A$-$: (0.00) or (0.01%) to 0.6477

    • $-INR: (0.12) or (0.15%) to 82.6350

    • $-CNY: +0.00 or +0.06% to 7.2890