Feb 22 ,2024
Synopsis:
Asian equities ended higher almost everywhere Thursday. Nikkei 225 surged to record highs to surpass 1989's post-bubble peak, Topix was also strong. Greater China higher again as the Hang Seng overturned a weak opening to finish near YTD highs. Seoul and Taipei higher on tech read across, Australia flat. India reversing early losses. Southeast Asia mostly better. US futures higher, European bourses surged to multi-year highs at the open. US dollar breaking lower in late trade, DXY index below 103.5, strength in AUD, NZD; yen flat on Ueda remarks, yuan also largely unchanged. Treasury yield curve flattening. Crude oil and precious metals higher, industrial metals mixed with iron ore lower again.
Asia markets benefited Thursday from Nvidia's top- and bottom-line beat that sent NVDA stock up 7% in after hours trading. Tech-dominated boards in Japan, South Korea and Taiwan all higher on read through together with notable gains in many AI-related names such as TSMC (2330.TT), Softbank (9984.JP) (via its Arm stake), and Tokyo Electron (8035.JP). Nikkei 225 surpassed previous record high set in December 1989 on direct read across from Nvidia today, but over the longer term has recovered on improved corporate governance, overseas investment support, weak yen, and optimistic outlooks.
China markets strong again today as CSRC banned major institutional investors from selling positions at the beginning and end of each trading day; Bloomberg noted options pricing some stability ahead for the country's main boards. BOK left interest rates unchanged as widely expected and kept growth outlook unchanged too. Japan flash PMIs showed manufacturing slump deepened amid steeper falls in output, new orders and exports; Australian flash PMIs mixed with services returning to growth but factory activity weaker; India flash composite PMI at seven-month highs. Overseas funds into Thailand higher again Wednesday on increased bets of a BoT rate cut sooner rather than later.
Sinopharm (1099.HK) has suggested it take China Traditional Chinese Medicine (570.HK) private for HK$4.6 per share. Saint Gobain (SGO.FP) confirmed it had made a A$4.3B takeover offer for CSR (CSR.AU) but CSR still traded below offer price, indicating deal is not assured. India regulators are set to question Zee Entertainment (505537.IN) management regarding fund diversion allegations.
Digest:
Nikkei 225 closes at new record, outlook remains positive:
A lot of attention on Nikkei 225 index closing at an all-time high 39,098.7 Thursday, breaking the prior record of 38,915 set on 12-Dec-89. Nikkei cited broad bullish themes including stronger corporate profitability, improved governance and deflation exodus -- and driven by overseas investor interest. Latest catalyst was strong Nvidia (NVDA) earnings pushing up names related to semiconductors and AI. Adds to tailwinds out of the domestic earnings season with many results above consensus and elevated shareholder payouts via buybacks. Outperformance versus western markets also notable with Nikkei up 17% since year-end compared with S&P 500 up 4%. Bloomberg broadly echoed these points, while adding yen depreciation as another factor. Also noted recent Nikkei forecast upgrades from brokerages such as Nomura, Daiwa Securities and Citigroup. Reuters cited the latest BofA fund manager survey indicating continued optimism on the outlook with nearly a third of respondents expecting double-digit returns in Japan over the next 12 months.
BOJ watchers fall in line with April rate hike scenario:
Reuters consensus poll found 25 out of 30 economists (83%) look for a rate hike in April as more forecasters were aligned in that month after becoming the overall majority view before the January MPM. Also, 76% anticipate YCC to be scrapped in April. Story noted only Daiwa Securities and T&D Asset Management sticking with the March call while only three were left with a forecast later than April. Predictions of NIRP ending by year-end now virtually unanimous at 91% vs 82% in January. Similarly, 97% foresee shunto wage hikes beating last year's 3.58% for large firms compared with 90% in January. More notable pickup in confidence for small and mid-sized employers with 90% expecting bigger raises vs 77% in January. Separately, Reuters cited comments from BOJ Governor Ueda to parliament though largely sticking to existing themes. Observing trend inflation increasing with service prices rising moderately, and BOJ will make the appropriate policy decision. Ueda refrained from commenting about FX outside of repeating the importance of stability.
Bank of Korea holds base rate and GDP growth forecast steady amid inflation, household debt worries:
BOK held seven-day repo rate at 3.5% for ninth consecutive meeting Thursday; kept its FY2024 GDP growth forecast at 2.1%, FY 2025 growth estimate 2.3%. Rate decision was widely expected by economists, and was by unanimous board vote although one member said door for cut should be opened for next three months. Bank also kept year-end inflation forecast unchanged at 2.6% average, slightly above economists' consensus, FY25 CPI 2.1% but lowered core inflation forecast to 2.2%. Warned inflation impacted by global risks, oil prices; cautioned against premature confidence in inflation converging to target. Also said project financing sector a risk factor in growth outlook. Governor Rhee said board members believe it is premature to talk about rate reductions, sees little likelihood of rate cut in H1. Said private consumption worse than expected but offset by improved exports (Yonhap, Bloomberg).
Japan PMIs softer as manufacturing declines deepen:
Flash manufacturing PMI was 47.2 in February, down from 48.0 in the previous month. Extends contractions to a ninth month and latest reading was the weakest since August 2020. Output, new orders and exports all logged stronger declines, as well as employment and finished goods inventories. Input and output price growth slowed. Services PMI also fell to 52.5 from 53.1 though assessment remained positive on the back of the 18th straight monthly expansion coupled with notable acceleration in new business (strongest since last August) while employment strength outweighed manufacturing weakness, driving the aggregate higher. Still, composite PMI fell to 50.3 from 51.5 indicating overall business activity broadly stagnated. Report noted outlook optimism was the lowest since January 2023, linked to drags from manufacturing orders. Some optimism toward employment growth though confined to nonmanufacturing sector. Recall that METI output projections showed January poised for a major drop, followed by a limited rebound in February, forming a notably weak trajectory for Q1. Fits with early consensus forecasts pointing to another contraction in Q1 GDP.
Chinese banks net interest margin contracts in Q4:
Caixin citing National Financial Regulatory Administration (NFRA) data noted NIM at commercial lenders in China has fallen to 1.69% in Q4-23, below 1.7% for first time. Breakdown showed NIM of large state-owned banks at 1.62%, joint-stock at 1.76%, city commercial and foreign-funded ones both at 1.57%, all lower from Q3; while NIM of private and rural commercial banks rose from previous quarter. Downward margin trend, started since Covid outbreak in 2020, has been continuing. Noted analysts pointed to further hit to bank margins at Q1-24 due to downward repricing of existing mortgage at start of year, interest rate cuts and extensions for LGFV borrowings. Zhongtai Securities added 25 bp cut in 5Y LPR announced on 20-Feb will lead to 7bp contraction in NIM for 2024 with greatest impact on major state-owned banks due to their high proportion of mortgages and longer-term corporate loans, meanwhile reductions in deposit rates will be gradually reflected in financial reports over next few years, alleviating some pressure on profitability.
Notable Gainers:
+23.9% 570.HK (China Traditional Chinese Medicine Holdings): Sinopharm proposes to privatize China Traditional Chinese Medicine Holdings at HK$4.6/share
+7.1% 9961.HK (Trip.com Group): reports Q4 adj EPADS CNY4.00 vs FactSet CNY2.23, revenue CNY10.34B vs FactSet CNY10.22B
+6.2% 2328.HK (PICC Property & Casualty): reports January total premium income CNY62.83B, +2.7% y/y
+2.1% FMG.AU (Fortescue): reports H1 Attributable NPAT $3.34B vs FactSet $3.21B, revenue $9.51B vs FactSet $9.48B
+0.6% 8001.JP (ITOCHU): reportedly in final talks to acquire Bigmotor
Notable Decliners:
-7.4% 3632.JP (GREE Inc): launches 8M-share secondary offering for holder KDDI in international market
-2.5% 4613.JP (Kansai Paint): issues zero coupon convertible bonds due 2029, 2031 for a total of ¥100B; sets conversion price at JPY2,771 for zero coupon convertible bonds due 2029, 2031
+0.0% 775.HK (CK Life Sciences International (Holdings)): expects to report material reduction in FY23 profit attributable
Data:
Economic:
Japan February
Flash manufacturing PMI 47.2 vs 48.0 in prior month
Services PMI 52.5 vs 53.1 in prior month
Composite PMI 50.3 vs 51.5 in prior month
New Zealand January
January trade balance (NZ$976M) vs revised (NZ$368M) in December
Exports (7.1%) y/y vs (4.5%) in December
Imports (20.0%) y/y vs (5.0%) in December
Markets:
Nikkei: 836.52 or +2.19% to 39098.68
Hang Seng: 239.85 or +1.45% to 16742.95
Shanghai Composite: 37.40 or +1.27% to 2988.36
Shenzhen Composite: 21.08 or +1.29% to 1650.10
ASX200: 2.80 or +0.04% to 7611.20
KOSPI: 10.96 or +0.41% to 2664.27
SENSEX: (260.57) or (0.36%) to 72362.52
Currencies:
$-¥: (0.22) or (0.15%) to 150.0930
$-KRW: (7.75) or (0.58%) to 1325.6000
A$-$: +0.00 or +0.66% to 0.6592
$-INR: (0.04) or (0.05%) to 82.8922
$-CNY: (0.00) or (0.01%) to 7.1883
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