May 27 ,2024
Synopsis:
Asian equities ended mostly higher Monday. Asia stocks led higher by the tech-driven boards in Taiwan and South Korea; Japan also received a boost from its tech sector. Hong Kong higher on the announcement of a chip support fund; mainland boards also saw solid gains. Indian boards at fresh record highs, Suotheast Asia more mixed. US futures lower for now although Wall Street closed today; mainland Europe bourses opened higher, UK closed for a holiday. US dollar unchanged, Asia currencies edging higher. Treasury yields higher, JGB 10Y yield at fresh 12-year high over 1.0%. Crude oil, precious and industrial metals slightly higher.
Asia stocks carrying over the positive momentum seen on Wall Street later Friday, with notable outperformances in tech-driven indexes in South Korea and Taiwan. The Hang Seng also outperformed despite an early wobble as Beijing launched a multi-billion dollar fund to support its semiconductor sector, and despite rising skepticism over its housing sector rescue plan. Confidence boosted further on reports Evergrande's EV unit may have found a partial buyer, adding to the string of developer debt deals in recent weeks as well as Alibaba and JD.com convertible debt issue that got away last week.
Japan FX chief Kanda reiterated yen intervention warnings; BOJ Governor Ueda said the bank will proceed cautiously on inflation-targeting framework and downplayed the rise in long-term yields. In macro developments, China YTD industrial profit growth was unchanged in April; the USTR announced reimposition of US tariffs on hundreds of Chinese goods, expanding recent White House tariff hikes on Chinese EVs. Leaders of China, Japan and South Korea holding a tri-lateral summit for first time in five years although no significant breakthrough is expected on thorny geopolitical or trade issues.
China Evergrande New Energy (708.HK) said its liquidators are in talks with a potential buyer to take a 29% stake in the company; stock almost doubled in first day trading in ten days. A Hong Kong court adjourned a hearing on the liquidation of Kaisa Group (1638.HK) until 24 June, giving the group more time to finalize a debt restructuring plan. SMIC (981.HK) one of China's semiconductor companies set to benefit from a new $47.5B fund to boost the chip sector; stock sharply higher.
Digest:
China's industrial profits resume growth in April:
Profits at industrial firms in China rose 4% y/y in April, resuming growth after dropping 3.5% in prior month. For first four months of 2024, profits grew 4.3%, same pace in Jan-Mar. State-owned enterprises saw profits drop 2.8% y/y in Jan-Apr, while foreign firms posted 16.7% growth and private enterprises recorded a 6.4% gain. Bloomberg noted data came after exports returned to growth in same month, giving boost to China's economy. Added China's strong industrial output has become source of escalating tension with west, which has voiced concerns that Beijing is flooding global markets with cheap goods, especially in clean energy. Policymakers rely on industrial producers to offset weak domestic demand to achieve this year's growth target of 5%. Noted growth in consumer spending at slowest pace since 2022 and factory-gate prices stuck in deflation. Key property market metrics also deteriorated in April. NBS statistician noted China will focus on expanding effective demand and effectively implement macro policies going forward.
US to end tariff exclusions on swathe of Chinese imports:
Bloomberg cited a USTR announcement Friday that tariff exclusions on about half the 400 products from China will expire. Added that 164 exclusions would be extended through May of next year. All of the exemptions, which are set to expire at the end of this month, will be extended through 14-Jun to allow for a transition period for those that aren't being renewed. Story noted exclusions to be preserved for a range of goods such as certain types of motors, medical equipment, child safety seats, among others. USTR said expiring exclusions apply to more than 100 products for which the administration received no public requests for extension. For other items, public comments failed to show that extending exclusions would help to shift sourcing out of China, or to show that the imports are unavailable from sources other than China. Amended exclusions follow President Biden's tariff hikes on a range of products, including a quadrupling of levies on China-made EVs. Separately, Bloomberg also discussed the Stresa G7 communique indicating stronger criticism of China's industrial practices.
BOJ speeches push JGB yields higher:
A couple of speeches at the BOJ-IMES Conference further stoked policy normalization speculation in the JGB market, leading 10-year yields up to 1.025% marking fresh post-QE highs. Governor Ueda's address introduced the main topics for the conference and did not convey any new policy views apartment from repeating the difficulties involved in estimating the neutral rate given nominal rates in Japan have been stable at a low level for an extended period of time. Press indicated markets paid more attention to Deputy Governor Uchida, who said definitively that he thought deflationary side effects from labor market trends had changed permanently, and Japan is primed to overcome its entrenched deflationary mindset, though sees sustainability as ultimately dependent on how the labor market evolves with inflation. Moreover, Uchida concluded his speech with the phrase, "This time is different," in apparent acknowledgement of the numerous false dawns of the past.
China, Japan, South Korea talks seen as largely symbolic:
Reuters reported China Premier Li Qiang met with President Yoon Suk Yeol in Seoul on Sunday and agreed to launch a diplomatic and security dialogue and resume free trade talks. Also discussed tensions around Taiwan with Japan Prime Minister Kishida. Bilateral talks to precede the first trilateral summit in more than four years. Article cited low expectations among diplomats and officials, though amicable exchanges would at least be an improvement in high-level diplomatic ties in years. Li generally deflected geopolitical discussions while flagging China was ready to strengthen cooperation in high-end manufacturing, new energy, AI, biomedicine and other fields. China will further expand market access, strengthen guarantees for foreign investment and welcomes more South Korean companies do business in the country. Kishida-Li meeting stressed importance of the stability of the Taiwan Strait. Kishida told reporters after the meeting he asked Beijing to lift an import ban on Japanese seafood imposed over the release of treated wastewater from the Fukushima nuclear plant. Seoul officials said leaders will issue a joint statement on six areas including the economy and trade, science and technology, people-to-people exchanges and health and the aging population.
Consensus looks for BOJ to formally reduce JGB purchases by July-end:
A Reuters poll showed 11 of 27 economists predicted BOJ to formally announce a reduction in JGB purchases as early as the June MPM, while another 6 respondents picked July. Follows BOJ's unexpected cut to the purchase amount in an operation early last week, and reverberations helped 10-year yields cross the 1% level for the first time in 12 years on Friday. Recall Nikkei noted tapering speculation was fueled further after the short-end tranche of Thursday's purchase operations went undersubscribed for the first time since the introduction of unconventional easing in April 2013. On the policy rate, all but one of 54 economists expected no hike in June, though 43 of 49 (88%) forecast a level of at least 0.20% by year-end, up from 65% in April. Breakdown showed 47% projecting 0.20%~0.35% in Q3, while 41% estimated either 0.20% or 0.25% in Q4. Seven economists who expected a rate increase in Q3 also saw a follow-up move to either 0.30% or 0.50% in Q4. With much of the hawkish tilt in expectations tied to yen depreciation, strong majority still look for FX intervention, particularly if yen breaches 160 per dollar.
Notable Gainers:
+81.6% 708.HK (China Evergrande New Energy Vehicle Group): China Evergrande Group, Evergrande Health, Acelin Global sign term sheet for potential sale of at least 29.0% stake in China Evergrande New Energy Vehicle to third party
+16.6% 034020.KS (Doosan Enerbility): reportedly to supply reactors and steam generators worth KRW2T ($1.46B) to NuScale
+14.9% 5E2.SP (Seatrium): Petrobras signs contracts for Platforms P-84 and P-85
+4.4% 6837.HK (Haitong Securities): rumor of merger between Haitong Securities, Guotai Junan is reportedly false
+2.5% 2327.TT (Yageo): subscribes to 21.0M shares in uPI Semiconductor's private placement at up-to-NT$253 per share
+2.4% 500530.IN (Bosch Ltd): reports Q4 standalone net profit INR5.65B vs FactSet INR4.99B
+1.7% 6988.JP (Nitto Denko): to conduct 5:1 stock split, effective 1-Oct
+0.2% 9048.JP (Nagoya Railroad): to acquire 7.5M shares in Tosei Corp at ¥2,370/share from CEO Seiichiro Yamaguchi
Notable Decliners:
-3.6% 000990.KS (DB HITEK Co.): to be excluded from KOSPI 200, effective 14-Jun
-1.1% 532555.IN (NTPC Ltd): reports Q4 standalone net income (after reg. def bal) INR55.56B vs FactSet INR55.41B
-0.6% 7733.JP (Olympus): to sell Orthopedic business to Polaris Capital group; terms undisclosed
-0.5% 6503.JP (Mitsubishi Electric): to increase stake in Realtime Robotics; terms undisclosed
Data:
Economic:
China Jan-Apr
Industrial profits YTD +4.3% y/y vs +4.3% in Jan-Mar
April industrial profits +4% y/y
Markets:
Nikkei: 253.91 or +0.66% to 38900.02
Hang Seng: 218.41 or +1.17% to 18827.35
Shanghai Composite: 35.17 or +1.14% to 3124.04
Shenzhen Composite: 13.04 or +0.75% to 1747.83
ASX200: 60.70 or +0.79% to 7788.30
KOSPI: 35.39 or +1.32% to 2722.99
SENSEX: 492.41 or +0.65% to 75902.80
Currencies:
$-¥: (0.06) or (0.04%) to 156.9200
$-KRW: (4.08) or (0.30%) to 1363.4500
A$-$: +0.00 or +0.15% to 0.6637
$-INR: +0.04 or +0.04% to 83.0939
$-CNY: +0.00 or +0.01% to 7.2439
This information and data is provided for general informational purposes only. The Bank of New York Mellon and our information suppliers do not warrant or guarantee the accuracy, timeliness or completeness of this information or data. We provide no advice nor recommendation or endorsement with respect to any company or securities. We do not undertake any obligation to update or amend this information or data. Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities.
Please refer to "Terms Of Use".
DEPOSITARY RECEIPTS:
NOT FDIC, STATE OR FEDERAL AGENCY INSURED
MAY LOSE VALUE
NO BANK, STATE OR FEDERAL AGENCY GUARANTEE