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StreetAccount Summary - Asian Market Recap: Nikkei (1.54%), Hang Seng (1.36%), Shanghai Composite +0.10% as of 04:10 ET

Sep 28 ,2023

• Synopsis:

  • Asian equities mostly lower Thursday. Nikkei selloff deepened with index hitting one-month low. Losses also intensified in Hong Kong as property developers extended drop and sharp falls in Hang Seng tech index. Mainland China eked out very small gains to cap off a losing September. Taiwan closed higher, Australia logged mild loss, South Korea, Malaysia and Indonesia observed holidays, rest of southeast Asia mixed, India trading lower, S&P 500 and Nasdaq futures flat, Europe opened higher. Treasuries yields were little changed while JGB 10y yield past 0.75% to highest in a decade. Dollar slightly weaker against yen, AUD stronger as well as offshore yuan. Crude at a 13-month high with supply squeeze in focus following another drop in US stockpiles, while industrial and precious metals both higher.

  • Asian markets get a weak handover from Wall Street as risk sentiment remains hamstrung by relentless backup in bond yields and markets dialing back 2024 rate cut expectations. Higher rate backdrop putting more scrutiny on equity market valuations, particularly high growth/tech pockets. Sharp falls in HK-listed China property stocks again in focus amid persistent concerns over repayment difficulties and rising default risk. China Evergrande and its units suspended trading though no reason was given after reports of its billionaire founder put under police surveillance. Markets will also scrutinize holiday spending by Chinese consumers during the eight-day Golden Week holiday, which starts Friday.

  • In other developments, Australian retail sales growth slowed by more than expected. New Zealand business confidence turned positive for first time since mid-2021 but details were soft. Foreign investors big sellers of Japan equities and bonds last week, attributed in part to profit-taking. Japan finance minister Suzuki repeated a warning on yen after currency neared 150-per handle traders eyeing as potential intervention trigger.

  • Mitsubishi Motors (7211.JP) decided to withdraw from car production in China. China Evergrande (3333.HK), along with its property services (6666.HK) and EV unit (708.HK), suspended trading in Hong Kong a day after reports that founder Hui Ka Yan taken away by police. HSBC (5.HK) set to acquire Citigroup's (C) China consumer wealth management business which manages more than $3B in assets. Hyundai (005380.KS) and Kia (000270.KS) are recalling a combined 3.37M vehicles in US due to engine fires. Singapore's GIC is among bidders to buy up to 20% stake in Vietnam's third-largest grocery chain Bach Hoa Xanh from Mobile World Investment (MWG.VN).

• Digest:

  • Record domestic travel expected during China's Golden Week while traders look to fresh catalysts:

    • China's Ministry of Culture and Tourism estimates people will make more than 100M trips a day during the most popular Golden Week in history (Reuters). The holiday, from 29-Sep to 6-Oct, will likely see 190M passengers travel by railway and 21M by air (Yicai). Meanwhile traveling overseas yet to rebound as outbound travel has only recovered to 60% of pre-Covid levels according to Trip.com with rising cost as a major factor. This leaves how much people spend domestically a key gauge of consumer appetite. Bloomberg noted high expectations for rise in spending have helped MSCI China Consumer Discretionary Index log a 1.3% gain in Q3, versus 4.2% decline in MSCI China Index. Analysts said holiday could be boost for travel, retail, and entertainment sectors despite macro headwinds. Property market will be closely monitored too as developers try to reverse sales slump during the traditionally busy season albeit stream of negative headlines.

  • China sovereign bond issuance surges, adding to liquidity pressures:

    • Bloomberg-compiled data indicated China government bond issuance totaled CNY1.2T ($164B) in September, the largest YTD and 60% higher than the average for the same period in the past three years. Issuance surged last week after Finance Ministry raised the amount offered for each tenor and added a new five-year note in auctions. Article noted sovereigns add to ramp-up in local government bonds, including a CNY1T scheme allowing provincial governments to raise funds to repay debts held by LGFVs and other state-owned off-balance-sheet issuers. Supply increase has helped push bond yields to a four-month high and also adds to PBOC's challenge to balance economic growth and low borrowing costs. Central bank has been responding with a recent RRR cut as well as OMO liquidity injections this week. Recall that liquidity pressures were a key element among economists' takeaways from the RRR cut, noting accelerated bond issuance orchestrated by the government with LGSB quotas to be used up by September-end.

  • Japan retail investors long yen on intervention expectations:

    • Nikkei discussed recent FX developments, noting a pickup in domestic buying interest in yen as USD/JPY approaches the 150 handle reflecting broad expectations authorities will intervene when that threshold is breached. Repeated verbal intervention from FX chief Kanda on each down-leg has given rise to so-called 'Kanda trades' whereby investors are taking contrarian positions against yen depreciation. Noted retail positions in TFX Click 365 showed open interest in yen longs outnumber shorts by 257K lots as at 19-Sep, marking a record gap going back to 2013. While narrowing somewhat since then, net longs remain elevated. Aggregates of the five main FX brokerages showed long positions accounted for 54.7% of all USD/JPY open interest and investors have been net long since August. Still, article noted swap points paid on positions held overnight make it difficult to sustain such positions over time. Moreover, this places retail investors directly in competition with major US hedge funds and other speculative institutions as CFTC data continues to show large net yen shorts.

  • Foreign investors were record sellers of Japan equities last week:

    • MOF data showed foreigners sold record net JPY3,025.3B in Japanese equities last week, adding to JPY1,278.4B in the previous week. Foreigners were also large net sellers of Japan bonds totaling JPY2,025.1B, marking the first outflow in four weeks. Recall last week's equity figures attracted some attention, though Bloomberg noted the contrast between MOF and JPX data, the latter showing foreigners were net buyers when including futures (MOF only counts OTC transactions). Still, cash selling was generally seen driven by profit-taking as Topix reached the highest since 1990. Also some thoughts cash-futures arbitrage trading tends to pick up in March and September. Other discussions have noted that Japan corporate fundamentals remain positive, albeit mostly reflecting domestic investor optimism, though recent push to expand PBR and shareholder payouts also notably supporting sentiment. In broader themes, post-Covid recovery dynamic has remained a support factor, while prospects for BOJ policy normalization have lifted banks. Furthermore, elevated China risks deterring new money and investors have indicated they are diverting Asia allocations to other countries, including Japan.

  • New Zealand business confidence turns positive, but details soft:

    • ANZ New Zealand business confidence index rose to +1.5 in September from (3.7) in August, marking first positive read since mid-2021. Firms' activity outlook remained positive with manufacturing and services sectors strong. Inflation metrics mixed with pricing intentions lifting alongside cost and wage expectations. Marginal improvement in inflation expectations, though at 4.95% remains well above RBNZ's 1-3% target. Firms still say finding skilled labor is their biggest challenge. Economic drag from China evident with export intentions turning negative. Construction activity also veered lower. Firms continue to anticipate margin compression though profit expectations were least negative since late-2021. ANZ said survey consistent with patchy economic activity, though elevated inflation pressures expected to result in another RBNZ rate hike in November.

  • Notable Gainers:

    • +10% 002456.CH (OFILM Group): Report on being major supplier of Huawei Mate 60's camera compact module

    • +4% 7211.JP (Mitsubishi Motors): Media's report on withdrawal of production in China

  • Notable Decliners:

    • -6.9% 2138.HK (EC Healthcare): downgraded to hold from buy at BOCI Securities Limited

• Data:

  • Economic:

    • Australia

      • August retail sales +0.2% m/m vs consensus +0.3% and +0.5% in July

    • New Zealand

      • September ANZ Business Confidence +1.5% versus (3.7%) in prior month

  • Markets:

    • Nikkei: (499.38) or (1.54%) to 31872.52

    • Hang Seng: (238.84) or (1.36%) to 17373.03

    • Shanghai Composite: 3.16 or +0.10% to 3110.48

    • Shenzhen Composite: 8.31 or +0.44% to 1910.28

    • ASX200: (5.50) or (0.08%) to 7024.80

    • KOSPI: 0.00 or 0.00% to 2465.07

    • SENSEX: (491.69) or (0.74%) to 65627.00

  • Currencies:

    • $-¥: (0.30) or (0.20%) to 149.3390

    • $-KRW: (0.48) or (0.04%) to 1354.7100

    • A$-$: +0.00 or +0.10% to 0.6369

    • $-INR: (0.07) or (0.08%) to 83.1920

    • $-CNY: (0.01) or (0.10%) to 7.3028