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StreetAccount Summary - Asian Market Recap: Nikkei +1.37%, Hang Seng +0.66%, Shanghai Composite (1.03%) as of 03:10 ET

Dec 20 ,2023

Editor's note: Asia Market Wrap will not be published on 25-Dec and will return on 26-Dec

• Synopsis:

  • Asian equities ended mostly higher Wednesday. South Korea's Kospi led the region higher with an almost 2% gain, another solid day for Taiwan too. The Hang Seng gained but was well off its peak by the close, mainland stocks fell abruptly. Australia finished on a 10-month high, India benchmarks hit fresh record highs. Southeast Asia mostly higher. Japan closed up but off its peaks following the BOJ's dovish hold yesterday. US futures higher, Europe opened stronger. US dollar flat, yen strengthened while yuan slipped as PBOC kept LPRs stable. Treasury yields lower at the long end with 10Y below 3.9%, JGB 10Y yield at three-month low, South Korea 10Y at nine-month low. Crude oil futures higher, precious metals edging up, industrial metals also caught a bid.

  • Asia equities seeing another solid day, outside of mainland China, joining the global end of year, risk-on rally. South Korea headlined, surging to close at a three-month high and for the fifth consecutive session as foreign investors returned to send blue-chips higher across the board. Reverberations from the BOJ decision Tuesday continued with the yen giving back some of yesterday's weakness but the Nikkei powering ahead and outperforming the Topix. Meanwhile, China left 1Y and 5Y loan prime rates unchanged as expected; comes after PBOC kept MLF rate on hold last week as the PBOC continues to lean on liquidity injections over rate cuts to address funding pressures.

  • Elsewhere, RBNZ Governor Orr said the bank was surprised by New Zealand's quarterly GDP contraction though did not see an implication for February's policy decision. Japan exports unexpectedly shrank for first time in three months and imports also declined faster than expected. Bank of Korea said inflation could drop to 2.0% by the end of next year even as it raised its FY forecast.

  • Nippon Steel's (5401.JP) takeover of US Steel (X) is in doubt amid strong opposition to the deal from unions and democrat politicians. Toyota Motor's (7203.JP) subsidiary Daihatsu Motor will suspend shipments on all vehicles after admitting its models were not properly tested for collision safety. Alibaba (9988.HK) replaced the head of its e-commerce head, and will create a firm to oversee its investment assets; the company has also been hit by a patent lawsuit from a Japanese firm covering cross-border e-commerce. Hyundai Motor (005380.KS) is to sell its Russia plant for a nominal sum and take a KRW287B ($220M) hit on the sale.

• Digest:

  • China LPRs unchanged as expected:

    • China LPRs were unchanged at 3.45% in 1y and 4.20% in 5y, matching unanimous expectations (Reuters). Follows MLF operation that injected record net CNY800B while keeping the 1y rate steady. Attention moving away from tighter liquidity supply-demand conditions as a result of fiscal drags (CNY1T in additional central government bonds have now been issued), but recent discussions suggested PBOC may be preparing for the next seasonal peak in liquidity demand stemming from year-end regulatory checks and Chinese New Year. Recall that rate relief expectations have been pushed back into next year after the Politburo and CEWC refrained from signaling imminent stronger policy support. However, mixed activity data reinforced perceptions that more stimulus is needed to shore up economic growth. Economists now projecting MLF rate cuts of at least 10 bp next year and 25~50 bp in RRR. Some debate over the extent to which sequential GDP growth will slow in Q4, though stimulus likely to provide support thereafter. Brokerage 2024 GDP estimates point to sub-5% growth, contrasting with expectations the government growth target will likely be kept at 'around 5%.'

  • Economists stick to BOJ rate hike calls:

    • Following the BOJ meeting, brokerage notes indicated no change to forecasts for the first rate hike. January camp remains optimistic on wage/inflation developments with Governor Ueda's conviction strengthening and did not detect contradictory signals but did acknowledge high uncertainties and the risk that a policy move may be pushed back to April. Tone of April calls indicated greater relative conviction, though risks are skewed to a later move if assumptions on wage growth, private consumption and US developments do not pan out. More cautious projections look for only a guidance change in April to lay the groundwork for a rate hike later. Some mention of news of economy minister Shindo's attendance that prompted some speculation of a change in the policy statement, though proved inconsequential. Attention on this point moves to the MPM minutes due 26-Jan. Recall broader consensus looks for a rate hike in April 2024, coinciding with the comprehensive semiannual Outlook Report (January is a quarterly update), and confirmation of shunto wage hikes.

  • Broadly dovish takeaways from BOJ meeting:

    • Press reports were broadly dovish on the BOJ MPM and Governor Ueda's press conference Tuesday. Nikkei top story highlighted Ueda's remark that while the certainty level on a virtuous wage/inflation cycle has gradually risen, they still need to evaluate further. Moreover, Ueda said he wants to monitor incoming information for a "little longer" before deciding to embark on the normalization path. Still, article noted a near-term move in January and April remain on the table, citing an ongoing debate over whether there is already sufficient evidence of a virtuous cycle, or that BOJ should wait until confirming wage hikes. Bloomberg noted some thoughts Ueda's comments make an April rate hike more likely. Swap market implies 90% probability of a move in April, while January stands at close to 45%. While Ueda largely ruled out Fed pivot as a factor in the timing of BOJ action, economists remain unconvinced given the risk of yen appreciation that may rekindle deflationary pressure.

  • Bank of Korea sees inflation dipping to 2% in 2024:

    • Bank of Korea said Wednesday it saw headline consumer inflation falling to 2.0% in 2024 but the pace of deceleration will be slower than expected. Said consumer prices unlikely to repeat November's steep decline, which was down to falling crude and agriculture prices, while recent rise in utility and oil prices could slow deceleration further. Forecast December CPI to be close to November's 3.3% before approaching 2.0% late next year although FY 2024 inflation now forecast at 2.6% from 2.4%. Bank kept rates steady at 3.5% for seventh consecutive meeting November, warned on higher prices (Yonhap). Governor Rhee added odds of policy easing by Fed is increasing but markets may be overreacting to Chair Powell's dovish comments. BOK report and Rhee comments come as South Korea's benchmark 10-year bond yield fell to eight-month low 3.3%, a 41 bps lower in just a month.

  • Slowdown in China equity sales seen persisting amid weak economic outlook, tighter regulations:

    • Bloomberg-compiled data showed proceeds of new and additional sales raised in mainland China and Hong Kong fell 43% y/y to $96.3B in 2023, poised for worst in a decade, versus 51% and 14% increase in volume raised in US and Europe respectively. Hong Kong on track for lowest year in terms of IPO proceeds since 2001. Chinese companies have shunned stock sales amid weak economic outlook as benchmark indexes among worst-performing ones globally YTD. Stellar first-month gains for new shares on mainland in the past also came less impressive this year. Investor confidence dented by lack of bazooka-style stimulus with international capital fleeing China. Beijing's stricter measures to slow pace of IPOs may also deter some companies' listing plans. Noted slowdown in equity offerings may continue amid headwinds. Meanwhile a bright spot might be for the smaller Beijing Stock Exchange with number of companies seeking pre-IPO guidance surging in December (ShanghaiSecuritiesNews). Some other notable names to watch are Syngenta Group and Alibaba (9988.HK)'s logistics arm, Cainiao.

  • Notable Gainers:

    • +10.2% 533106.IN (Oil India): India Government cuts windfall tax on oil companies

    • +3.6% 005380.KS (Hyundai Motor): Company is to sell its Russia plant for a nominal sum and take a KRW287B ($220M) hit on the sale

    • +2.7% 9988.HK (Alibaba Group): has replaced its head of e-commerce and is to create a firm to oversee its investment assets

    • +0.1% 7203.JP (Toyota Motor): The company's Daihatsu unit is to suspend shipments on all vehicles because of a quality control problem

  • Notable Decliners:

    • -7.1% 000651.CH (Gree Electric Appliances Inc of Zhuhai): to acquire 24.5% stake in Gree Altairnano New Energy for CNY1.02B

    • -0.5% 9007.JP (Odakyu Electric Railway Co.): reports November preliminary railway business commuter and non-commuter revenue ¥9.56B, +10.7% y/y

    • -0.4% 293.HK (Cathay Pacific Airways): reports November traffic +148.2% y/y

    • -0.3% 4507.JP (Shionogi & Co.): launches Fetroja Intravenous Infusion 1g in Japan

    • +0.0% 2330.TT (Taiwan Semiconductor): chairman Mark Liu to retire after the 2024 AGM

• Data:

  • Economic:

    • Japan November

      • Trade balance (¥776.9B) vs consensus (¥1,000.0B) and revised (¥661.0B) in prior month

        • Exports (0.2%) y/y vs consensus +1.4% and +1.6% in prior month

        • Imports (11.9%) y/y vs consensus (8.6%) and (12.5%)) in prior month

  • Markets:

    • Nikkei: 456.55 or +1.37% to 33675.94

    • Hang Seng: 108.81 or +0.66% to 16613.81

    • Shanghai Composite: (30.28) or (1.03%) to 2902.11

    • Shenzhen Composite: (22.20) or (1.23%) to 1785.34

    • ASX200: 48.80 or +0.65% to 7537.90

    • KOSPI: 45.75 or +1.78% to 2614.30

    • SENSEX: (326.11) or (0.46%) to 71111.08

  • Currencies:

    • $-¥: (0.25) or (0.18%) to 143.5820

    • $-KRW: (1.73) or (0.13%) to 1299.0900

    • A$-$: +0.00 or +0.08% to 0.6771

    • $-INR: (0.02) or (0.02%) to 83.1333

    • $-CNY: +0.02 or +0.32% to 7.1257