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StreetAccount Summary - Asian Market Recap: Nikkei (1.34%), Hang Seng (1.60%), Shanghai Composite +0.14% as of 03:10 ET

Jan 26 ,2024

• Synopsis:

  • Asia equities ended largely lower Friday. Steep losses in Japan with indices ending at their day lows. Hong Kong also sharply lower as its three-day rally ran out of steam; mainland markets mixed with Shanghai slightly higher. Seoul hung on to small gains, Taipei flat, Southeast Asia was mixed. Australia and India closed for holidays. US futures under pressure, Europe opened mixed. US dollar flat, yuan weaker but other currencies flat. Treasury yields down at the long end, higher at the short. Crude oil lower, precious metals higher and industrials slightly higher.

  • Positive overnight sentiment not followed through to Asia equities Friday, with Japan's markets showing sustained weakness for the first time in months as technical indicators continue to point to overbought conditions. The Hang Seng rally ended with a 1.6% loss despite Beijing signaling more targeted stimulus was on the way, with some substantial losses in a handful of tech companies on fears of fresh US sanctions. A relatively quiet day elsewhere as the busy week petered out with the bulk of the region's exchanges seeing weekly advances.

  • Tokyo CPI softer than expected and BOJ minutes showed intensifying debate on easing exit. Singapore manufacturing output unexpectedly dropped while exports from the Philippines and Thailand both fell by more than expected. Ahead, US PCE the final major catalyst for the week.

  • China Evergrande (3333.HK) faces a rare 'regulating order' Monday that could lead to the court appointing a liquidator. Tencent's (700.HK) Riot Games has canceled plans for a streaming platform to rival Amazon's Twitch. Samsung Electronics (005930.KS) and SK Hynix (000660.KS) are to meet OpenAI's Sam Altman to discuss potential partnerships for making chips. BHP (BHP.AU) and Brazil's Vale have been ordered to pay $9.7B over the Samarco tailings dam collapse in 2015.

• Digest:

  • BOJ in no hurry to judge stable inflation, but debate picking up:

    • Minutes for the December MPM revealed broad consensus that sustainable and stable achievement of the price stability target accompanied by wage increases was not yet envisaged with sufficient certainty and thus continued to support easing. However, discussions on the outlook for wages and inflation were rigorous. Some cautioned against specific numerical values such as shunto wage hikes in favor of a more holistic assessment. Members agreed to reevaluate incoming information at each meeting. Some were unconcerned about falling behind the curve by not rushing to raise rates, even if they waited until after the shunto results. One suggestion that upside surprise in wages would pose little risk of a significant inflation overshoot. Another noted that with prior YCC flexibility enhancements, they would have enough leeway to determine whether virtuous wage/price cycle had intensified. Arguments in favor of faster assessment were based on side-effect concerns. Minutes also revealed preliminary discussions on the exit strategy, though there were no standouts. From a longer term perspective, a few members said Bank is likely to continue substantial easing for the time being, even after ending negative rates. One suggested current guidance (maintain QQE and YCC for as long as necessary) allows for some modifications.

  • Tokyo core inflation softer than expected, services PPI growth steady:

    • Tokyo core CPI rose 1.6% y/y in January, below consensus 1.9% and follows 2.1% in the previous month. Marks the first sub-2% print since May 2022. Ex-fresh food & energy inflation was up 3.1% vs consensus 3.4% and 3.5% in December. Energy drags deepened marginally reflecting sharper declines in electricity and gas prices. Main factor was a dramatic deceleration in accommodation as base effects turned negative. Non-fresh food prices continued to moderate, while fixed line phone fees turned negative. Goods inflation eased notably to 1.4% from 2.6%, mostly driven by non-durables though broadly based. Closely watched services inflation also slowed to 1.7% from 2.2%. Separately, services PPI rose 2.4% y/y in December, matching expectations. Pace remained steady from the prior month and topped 2% for the fifth straight month. Overall, results point to further moderation in nationwide figures due 27-Feb. Recent attention was on the BOJ's downward revision to FY24 core inflation forecast to 2.4% from 2.8%, though largely reflecting lower oil prices and consistent with preceding press leaks. Governor Ueda was generally upbeat on the inflation outlook, underpinning the Bank's view that the certainty of achieving stable inflation is gradually rising.

  • China policy support providing some optimism, but equity valuations remain depressed:

    • Nikkei cited QUICK-FactSet aggregates showing price-to-book ratios for Chinese companies fell to about 1.7 as of Monday. This was a five-year low and close to the all-time nadir of 1.52 in 2005. Market was boosted since then by the PBOC's RRR cut announcement, window guidance to push banks to lend more to property developers, as well as a media report indicating the government is considering a CNY2T ($280B) stock market stabilization fund. However, mainland market continues to lag the US and Japan. Highlighted particular weakness in finance stocks with a P/B of 0.61. Noted official data on NPLs remains steady in the 1% range, though doubts about balance sheet quality have grown in light of recent string of defaults by developers. Story also discussed high dependence on private consumption that has been a common trait among companies seeing the biggest declines in market cap since 2022-end. Stock Connect still showing equity outflows this month through Thursday. China stock analysts generally see the market as undervalued and are hopeful for a boost from policy support, though fundamental housing supply-demand gap will be a long-term issue.

  • StreetAccount Event Preview: Monetary Authority of Singapore policy meeting, 29 January:

    • Bloomberg survey of 19 economists showed unanimous views that Monetary Authority of Singapore (MAS) is to maintain tight monetary policy settings on 29-Jan for third straight review while retaining focus on still-elevated inflation. Noted central bank tightened five times since Oct-21 before pausing in 2023. This will be first policy statement under new head Chia Der Jiun and since bank shifted to quarterly schedule from biannual reviews. Recall inflation remains sticky with core reading at 3.3% in December, higher from 3.1% expected and 3.2% in November, driven by higher costs of services and utilities. Goods and services tax (GST) also hiked to 9% from 8% since 1-Jan. Reuters noted trade ministry and central bank warned in December that prices could remain volatile in near-term thanks to GST increase and swings in premiums paid for cars. Core inflation expected to be 2.5 to 3.5% for 2024, while some fear measure will rise this year as disinflation from base effect to fade and following tax increase, which prompts views that MAS to maintain hawkish stance this month and may further tighten later in 2024.

  • Japan to privatize Tokyo Metro as early as FY24:

    • Nikkei reported the central and Tokyo governments will start to divest their stake in subway operator Tokyo Metro as early as FY24 and aims to list the company from the summer. They currently hold a 100% stake and plan to eventually sell off 50%. Central government will allocate proceeds to 2011 earthquake aid. Timing of the sale to be finalized in light of current market strength. Tokyo government has already logged about JPY3.6B in expenses related to the divestment in their FY24 budget proposal released today. Preparations to begin in earnest after the bill is passed by March-end. Governments will use bookbuilding method, keeping with prior privatization projects including Japan Post Holdings (6178.JP) and Japan Tobacco (2914.JP). Article recalled five companies including Nomura Securities were selected as lead underwriters for the stock offering while they explored the timing. Tokyo Metro's latest financial statement showed a 2.7-fold y/y increase in Apr-Sep net profit to JPY24.2B ($164M).

  • Notable Gainers:

    • +14.4% 5541.JP (Pacific Metals Co.): Activist City Index Eleventh discloses 5.76% stake in Pacific Metals Co.

    • +3.5% 373220.KS (LG Energy Solution): guides FY24 revenue +mid-single digit % y/y

    • +0.9% 8628.JP (Matsui Securities Co.): reports Q3 revenue ¥9.81B, +22% vs year-ago ¥8.04B, operating income ¥3.53B, +17% vs year-ago ¥3.01B

    • +0.4% 017670.KS (SK Telecom): completes share buyback announced on 26-Jul-23

  • Notable Decliners:

    • -14.2% 093370.KS (FOOSUNG Co.): to launch 12.9M-share placement at KRW7,850/share

    • -7.8% 6723.JP (Renesas Electronics): NEC, Hitachi reportedly to sell shares in Renesas Electronics

• Data:

  • Economic:

    • Japan

      • January Tokyo core CPI +1.6% y/y vs consensus +1.9% and +2.1% in prior month

        • CPI excl. fresh food & energy +3.1% y/y vs consensus +3.4% and +3.5% in prior month

        • Overall CPI +1.6% y/y vs consensus +2.0% and revised +2.4% in prior month

      • December services PPI +2.4% y/y vs consensus +2.4% and revised +2.4% in prior month

    • Singapore December

      • Manufacturing production y/y (2.5%) versus +0.1% in prior month

  • Markets:

    • Nikkei: (485.40) or (1.34%) to 35751.07

    • Hang Seng: (259.73) or (1.60%) to 15952.23

    • Shanghai Composite: 4.11 or +0.14% to 2910.22

    • Shenzhen Composite: (11.94) or (0.71%) to 1678.04

    • ASX200: Closed

    • KOSPI: 8.22 or +0.33% to 2478.56

    • SENSEX: Closed

  • Currencies:

    • $-¥: +0.18 or +0.12% to 147.8190

    • $-KRW: (0.82) or (0.06%) to 1336.1900

    • A$-$: (0.00) or (0.05%) to 0.6580

    • $-INR: (0.07) or (0.09%) to 83.1334

    • $-CNY: +0.02 or +0.22% to 7.1548