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StreetAccount Summary - Asian Market Recap: Nikkei +1.13%, Hang Seng +1.79%, Shanghai Composite (0.27%) as of 04:10 ET

Jun 03 ,2024

  • Synopsis:

    • Asia equities ended higher almost everywhere in a strong start to the week. India stocks led the gainers with a more than 3% gain with a few hours of trading left. Strong gains for the Hang Seng, Seoul and Taipei. Southeast Asia higher and Australia also had a solid day, Japan closed near its day's high. Shanghai's Composite the only major index to see a fall. New Zealand and Thailand closed for a holiday. US futures higher, Europe off to a strong start. US dollar unchanged, onshore yuan notably weaker, rupee stronger on election. Treasury yields mixed, JGB yields lower. Crude oil contracts moving higher, precious and industrial metals trading around the flatline.

    • India stocks surging after exit polls showed ruling BJP and PM Modi likely to win substantial majority in the country's general election, which ended on Saturday and will be counted Monday. PSU Banks, energy and banks as well as the Adani group of companies all notably higher, with manufacturing and financial sectors seen as benefiting most from a large BJP victory on promised reform. Foreign inflows also forecast to increase given likely policy continuity.

    • The Hang Seng was higher after China Caixin manufacturing PMI rose by more than expected, marking the fastest pace of expansion since mid-2022. Details showed output growth accelerated with new orders also rising indicating future readings may also be positive. Strong PMI readings elsewhere as South Korea and Japan manufacturing sectors returned to growth, and Taiwan expanded at quicker pace. A common theme throughout the region was expanded output and strong new orders alongside higher input costs. South Korea also saw a boost today with a potential large oil & gas discovery off the country's coast that saw several domestic energy stocks surge significantly. Separately, South Korean export growth sustained momentum in May with semi shipments rising another 55% y/y.

    • Toyota Motor (7203.JP) and Mazda Motor (7261.JP) were among several Japanese automakers to halt vehicle sales after Japan's transport ministry found irregularities in their certification applications. Sharp Corp (6753.JP) and KDDI (9433.JP) are considering establishing a data center joint venture. Tencent (700.HK) and Tencent Music Entertainment (1698.HK) have bought a stake in Thailand's GMM Music, owned by GMM Grammy (GRAMMY.TB) for $70M. Genscript Biotech (1548.HK) confirmed US Congress select committee has asked the FBI and the US National Intelligence Office to gather information on the company; stock sharply lower. Korea Gas (036460.KS) is set to be a beneficiary of oil and gas deposit possibility off west coast of South Korea; stock up sharply.

  • Digest:

    • India assets surge as exit polls indicate decisive majority for PM Modi and BJP:

      • India stocks surged to fresh records, and rupee and sovereign bonds also climbed as exit polls show Narenda Modi likely to be returned for third term as India prime minister. Full election results released Monday but polls showed clear victory for Bharatiya Janata Party (BJP) and its National Democratic Alliance (NDA). Six polls by local media outlets showed BJP with majority of 353-401 seats in 542-seat parliament, beating INDIA opposition alliance led by Congress Party. Modi also appeared confident of victory in several social media posts however opposition politicians claimed their own polling victory, without citing evidence (FT). Various provincial election results already posted show swing to BJP (Reuters) while in general election BJP confident of winning in country's southern provinces in signal Modi widening his appeal.

    • Markets await Modi's economic reform push as exit polls point to big win:

      • With policy continuity and political stability touted as key benefits of a BJP election win, PM Modi's predicted 350-400 seat total has raised hopes he has gained the political capital to usher in reforms considered crucial in fortifying India's economic fundamentals and underpinning its growth ambitions. Reuters cited government officials familiar with the matter who said Modi is planning several reform measures, including relaxing labor market rules to hire and fire workers, reduce import taxes on critical inputs of domestic goods, and boost subsidies for domestic production. Infrastructure, manufacturing, energy and autos among industries seen benefiting from Modi's policy push (Bloomberg). Reform expectations seen renewing foreign interest in Indian stocks following recent stretch of outflows leading into election (Bloomberg). Bankers also anticipate ECM activity to heat up with Bloomberg-compiled data showing ~$3.9B already raised via IPOs so far in 2024, more than double same period a year earlier and contrasting with tepid listing activity elsewhere in Asia.

    • China Caixin manufacturing PMI expands to highest in nearly two years:

      • Caixin manufacturing PMI was 51.7 in May, surpassing estimates of 51.5 and April's 51.4. Data in expansion into seventh consecutive month and was fastest pace since Jun-2022. Firms in consumer segment reported sharp output growth, underpinned by higher new work inflows with strong demand supported by growing interest in new products. Meanwhile rate of new order expansion slowed slightly from April. Purchasing activity increased and stocks of purchases rose with aim for safety stock building. Stocks of finished goods back to contraction due to faster outbound shipments. Backlogged work accumulated for third consecutive month and at quickest pace since Sep-2021. However sector's labor market remained in contraction for ninth straight month. Average input costs continued to increase with rate of input price inflation to highest since October. Average output prices little changed. Business sentiment remained positive and improved from April. Caixin's reading, focusing on smaller and export-oriented firms, came in contrast with weak official data from NBS that unexpectedly contracted in May.

    • Japan transport ministry to raid five major automakers for model certification fraud:

      • Nikkei reported MLIT discovered irregularities among five Japanese automakers related to so-called model certifications required for vehicle mass production. Companies include Toyota (7203.JP), Mazda (7261.JP), Yamaha (7272.JP), Honda (7267.JP) and Suzuki (7269.JP). Ministry will perform on-site inspections in response. Article noted that MLIT had instructed each automaker to perform internal probes on the issue which have concluded for all but Toyota. Toyota confirmed falsifications were uncovered for seven models, three of which are current -- Corolla Fielder, Corolla Axio, Yaris Cross -- and shipments/sales have been temporarily suspended. Other models are no longer being produced. Article added Mazda disclosed infractions for five models (two currently produced), Yamaha found two models (one current), Honda 22 models (all retired) and Suzuki found a case for one retired model. The investigation was an extension of the scandal at Toyota Industries (6201.JP), prompting a wider probe covering 85 related companies including component manufacturers on their certification records going back 10 years.

    • BOJ JGB purchase schedule unchanged for June amid tapering speculation:

      • Nikkei discussed BOJ's latest update to its Q2 JGB purchase schedule, showing no changes to operation frequency through June, implying monthly buying set to remain at a roughly JPY6T pace. Article did not flag major headline effects though noted the recent upswing in JGB yields were underpinned by speculation of a tapering announcement after the surprise downsizing of the 5y~10y tranche in the 13-May operation. Sentiment was reinforced after the 1y~3y tranche on 23-May went undersubscribed, indicating struggles to meet BOJ's quota. Nikkei separately tallied BOJ purchases in May, totaling JPY5.7T to mark the lowest amount since February 2020. This followed JPY5.9T pace in January through April. Article cited thoughts that tapering expectations are strengthening as yen has weakened since the downsized operation and BOJ could make an announcement as early as the June 13-14 MPM. Mizuho suggested a high probability that BOJ might dial back purchases to JPY5T per month. Yet, the latest schedule update revealing no changes now apt to sustain market expectations that a tapering announcement could come at any time.

    • Notable Gainers:

      • +29.9% 036460.KS (Korea Gas): South Korea's President reportedly announced today that according to geophysical study, reserve off Yeongil Bay in Pohang could hold up to 14B barrels of oil and gas

      • +14.7% 007070.KS (GS Retail Co.): conducts spin-off and separate listing PARNAS HOLDING

      • +2.9% 003490.KS (KOREAN AIR LINES Co.): reportedly planning to order up to 30 new jets from Boeing as soon as next month

      • +2.6% 6501.JP (Hitachi): Thales completes the sale of its Ground Transportation Systems business to Hitachi Rail for €1.66B (enterprise value)

      • +1.5% 035420.KS (NAVER): Webtoon Entertainment files IPO through Goldman Sachs, Morgan Stanley, J.P. Morgan, and Evercore ISI

      • +1.4% 6753.JP (Sharp Corp): reportedly seeking to establish data center JV with KDDI

      • +1.2% 3401.JP (Teijin): Blackstone reportedly to acquire 55.1% stake in Infocom from Teijin

    • Notable Decliners:

      • -17.3% 1548.HK (Genscript Biotech): notes US Congress members have asked FBI, ODNI to seek information on it

      • -1.8% 7203.JP (Toyota Motor): releases results of investigation regarding model certification applications

      • -1.4% 2587.JP (Suntory Beverage & Food): Suntory spokesperson reportedly denies it is in discussions to acquire Boston Beer

  • Data:

    • Economic:

      • China May

        • Caixin manufacturing PMI 51.7 vs consensus 51.5 and 51.4 in prior month

      • Japan

        • Q1 MOF corporate survey capex +6.8% y/y vs consensus +11.1% and +16.4% in prior quarter

          • Ex-software capex +6.8% y/y vs consensus +8.4% and +11.7% in prior quarter

          • Total capex (4.2%) q/q sa vs revised +10.7% in prior quarter

        • May final manufacturing PMI 50.4 vs preliminary 50.5 and 49.6 in prior month

      • Australia May

        • MI Inflation Gauge m/m +0.3% versus +0.09% in prior month

    • Markets:

      • Nikkei: 435.13 or +1.13% to 38923.03

      • Hang Seng: 323.43 or +1.79% to 18403.04

      • Shanghai Composite: (8.32) or (0.27%) to 3078.49

      • Shenzhen Composite: (10.54) or (0.61%) to 1719.12

      • ASX200: 59.30 or +0.77% to 7761.00

      • KOSPI: 46.00 or +1.74% to 2682.52

      • SENSEX: 2,339.59 or +3.16% to 76300.91

    • Currencies:

      • $-¥: (0.18) or (0.11%) to 157.0960

      • $-KRW: (5.78) or (0.42%) to 1377.3500

      • A$-$: (0.00) or (0.18%) to 0.6638

      • $-INR: (0.29) or (0.35%) to 83.1674

      • $-CNY: +0.04 or +0.57% to 7.2452

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