Feb 21 ,2024
Synopsis:
Asian equities ended mixed Wednesday. Greater China markets led the gainers on constructive developments in the property sector but finished well off their highs of the day. Small gains in Southeast Asia benchmarks but elsewhere, markets in Australia, Japan, South Korea and Taiwan all lower; India reversing early gains that hit fresh records. US futures lower, Europe mixed in opening trades. US dollar flat; yuan, AUD and NZD strengthened. Treasury and JGB yields mixed. Crude oil lower, more losses for iron ore but other metals supported. Gold and silver higher.
Asia tech-dominated markets sold off on read through from overnight Wall Street wobbles as nerves grew ahead of Nvidia earnings due later Wednesday. This weighed on Seoul, Taipei and Tokyo in particular, while a profit miss at a major Australian retailer weighed on the ASX. Sovereign bonds also rallied overnight to send yields and the US dollar lower with the DXY index dropping below 104 for a time, supporting rallies in the AUD and NZD among others. The yuan also touched three-week highs, supported by a targeted LPR cut yesterday and a report today China's banks had approved $17B in loans to developers under the government's 'whitelist' scheme. China mainland bourses also froze the trading accounts of a major quant fund after it dumped shares within a minute of Monday's market open in the latest market-support measure.
In other macro developments, Reuters Tankan survey showed Japan manufacturer sentiment deteriorated sharply over soft domestic consumption. South Korean exports fell 8% over the first 20 days of February, mainly reflecting fewer working days; Australian wage inflation rose by more than expected; Bank Indonesia held rates steady at 6.0% as expected. Ahead, as well as Nvidia results, January FOMC minutes are expected to push back against expectations around Fed's rate cut path and reinforce higher-for-longer bias, while several Fed members are due to speak.
Toyota Motor (7203.JP) said it will continue wage negotiations with unions after the first round of talks concluded on Wednesday. ESR Group (1821.HK) is considering various options for the company including taking the company private, according to insiders. HSBC (5.HK) took a $3B charge on the value of its stake in Bank of Communications (3328.HK), reported Q4 earnings of $1B and annual earnings of $30B; to begin share buy back programme. Rio Tinto (RIO.AU) CEO said China is growing and is robust, company won't expand in battery metals outside current lithium holdings; said FY net profit fell, cut dividend. The India market regulator said Zee Entertainment (505537.IN) may have illegally diverted $241M from the company; shares sharply lower. Singapore Airlines (C6L.SP) admitted rising costs, increased competition and faster than expected deterioration in passenger yields had hit FY results; stock down steeply.
Digest:
China approves $17B of property development loans under 'whitelist' project:
China's housing authority said it approved CNY123.6B ($17.2B) of development loans, issued CNY29.4B under "whitelist" mechanism aimed at injecting liquidity into country's property sector. Scheme launched 26-Jan allows city governments to recommend suitable residential projects to receive financial support to finish work. Ministry of Housing and Urban-Rural Development said 214 cities initiated mechanism, recommended more than 5,300 projects to banks with 162 projects in 52 cities being approved for loans. At scheme's launch, developers told loans may only be used to complete projects, cannot be used to refinance, pay down debt. Property developers, real estate names led in Hong Kong and Shanghai trading Wednesday on back of news; Hang Seng mainland properties index up 2.5% mid-afternoon, real estate sector +3.6% in Shanghai. Notably higher stocks include Sino-Ocean (3377.HK) up 4.0%, Shimao Group (813.HK).
China restricts major quant fund in effort to boost market:
Shanghai and Shenzhen bourses froze accounts of Ningbo Lingjun Investment, with AUM more than CNY60B ($8.33B) and one of four-biggest quant funds in China, for three days after it dumped CNY2.57B worth of A-shares within a minute at market open on 19-Feb, seen as "abnormal trading behavior" and "disrupting normal trading order" (Bloomberg, Reuters). Lingjun apologized, saying it will "resolutely comply" with bourses' restrictions and is "bullish and long on Chinese stocks". Added fund will enhance trading models and strictly control transaction processes. Exchanges (Shanghai, Shenzhen) said they would strengthen monitoring and analysis of quantitative, especially high-frequency trading, while quant trades made by northbound investors via Stock Connect will also be included in reporting scope. Restriction seen as latest move by Chinese regulators to reverse market slump as quant funds were blamed for amplifying market volatility and fueling routs. Market watchers noted regulators are sending signal that investments should be prioritized for long-term money managers, rather than swift trades.
Reuters Tankan manufacturing sentiment turns negative:
Reuters Tankan manufacturing sentiment index fell to -1 in February from +6 in the previous month, marking the first negative reading in 10 months. However, outlook points to a rebound back to +6 in May. Cited anecdotal evidence echoing inflation drags on domestic consumption. Services index declined to 26 from 29 and seen moderating further to 23 in May. Results follow unexpected Q4 GDP contraction for the second straight quarter and early consensus polls point to another decline in Q1. Recall that prior narrative was optimistic on nonmanufacturing strength reflecting post-Covid dynamics though attention has since shifted to soft domestic demand as GDP private consumption and capital spending have fallen for three straight quarters. Inflation largely to blame, eroding real household income and increasing cost pressures for investment. Economists remain sanguine on the outlook from Q2, though predicated on stronger wage growth translating to consumer demand and underpinned by strong corporate profits. Key risk event remains the shunto results from mid-March, where bigger pay raises are seen as the final crucial piece required for a BOJ rate hike.
Bank Indonesia holds key interest rate steady:
Bank Indonesia's (BI) held benchmark rate steady at 6.0% for fourth consecutive meeting Wednesday, as widely expected, as bank looks to shore up rupiah in wake of strong US data and unlikelihood of Fed rate cut next month. BI said it forecast global economic growth to be better than previous projections amid still high financial market uncertainty, higher geopolitical risks. Forecast FY24 economic growth of 4.7-5.5% y/y underpinned by improving exports, said household consumption needs to be encouraged. Bank previously signaled rate cuts only in H2 with decision likely to depend on extent of government stimulus. President-elect Prabowo promised several fiscally expansive programmes however he will not take office until October. BI governor Warjiyo said bank's focus was for rupiah to remain stable and appreciate, given battle with inflation mostly behind it with January CPI at 2.6%, well within 1.5-3.5% bank target range.
Japan exports beat amid China Lunar New Year effects:
Customs exports rose 11.9% y/y in January, above consensus 9.5%. Follows revised 9.7% in the previous month and marks the highest growth since November 2022. Autos remained a key driver along with semiconductor making equipment. Regional breakdown showed sharp acceleration in China, though subject to usual LNY effects. EU shipments picked up moderately, while US growth moderated. Import declines deepened to 9.6% from revised 6.9% in December vs consensus 8.7%. Communications equipment joined fossil fuels as the main drags. China volatility was also the main factor, outweighing upswing in shipments from US. Average customs-cleared USD/JPY was 143.95 equating to 9.0% y/y yen depreciation. Price factor explained the pickup in nominal exports though volumes grew moderately for the second straight month. In contrast, import volumes were notably weaker, though also driven by China, as well as EU. Early takeaways downplayed export strength due to the LNY factor (Nikkei). BOJ real trade indices showed a 4.6% m/m decrease in exports and a sharper 9.7% drop in imports, pointing to a notably positive start to Q1 GDP external demand. However, focus turns to February data to monitor normalization of LNY effects.
Notable Gainers:
+8.7% 11.HK (Hang Seng Bank): reports FY net income attributable HK$17.85B vs FactSet HK$16.87B, net interest income HK$32.30B vs FactSet HK$31.90B
+8.0% 1821.HK (ESR Group): owners reportedly considering options for company
+1.8% 2273.HK (Gushengtang Holdings): guides FY adjusted net income CNY295-305M vs FactSet CNY292.6M
+1.4% 4684.JP (OBIC Co.): to launch up to 750K shares off-auction buyback for up to ¥16.65B
Notable Decliners:
-11.3% 505537.IN (Zee Entertainment Enterprises): Securities and Exchange Board of India reportedly may allege that Zee Entertainment Enterprises may have illegally diverted $241M
-9.1% C6L.SP (Singapore Airlines): reports Q3 EBITDA SG$1.37B, (5%) vs year-ago SG$1.44B
-3.4% 5.HK (HSBC Holdings): reports FY EPS $1.14 vs consensus $1.32, revenue $66.06B vs consensus $66.69B
-1.0% 6758.JP (Sony): Walt Disney reportedly transferring the majority of its DVD and Blu-ray business in the US and Canada to Sony
Data:
Economic:
Japan
January trade balance (¥1,758.3B) vs consensus (¥1,855.4B) and revised ¥68.9B in prior month
Exports +11.9% y/y vs consensus +9.5% and revised +9.7% in prior month
Imports (9.6%) y/y vs consensus (8.7%) and revised (6.9%) in prior month
February Reuters Tankan manufacturers' sentiment index (1) vs +6 in prior month
Service sector index +26 vs +29 in prior month
Australia
Q4 wage price index +0.9% q/q vs consensus +0.9% and +1.3% in Q3
Wage price index +4.2% y/y vs consensus +4.1% and +4.0% in Q3
Markets:
Nikkei: (101.45) or (0.26%) to 38262.16
Hang Seng: 255.59 or +1.57% to 16503.10
Shanghai Composite: 28.23 or +0.97% to 2950.96
Shenzhen Composite: 16.55 or +1.03% to 1629.01
ASX200: (50.60) or (0.66%) to 7608.40
KOSPI: (4.48) or (0.17%) to 2653.31
SENSEX: 6.82 or +0.01% to 73064.22
Currencies:
$-¥: +0.13 or +0.09% to 150.1340
$-KRW: (0.52) or (0.04%) to 1333.6300
A$-$: +0.00 or +0.23% to 0.6565
$-INR: +0.01 or +0.02% to 82.9048
$-CNY: (0.01) or (0.08%) to 7.1857
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