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StreetAccount Summary - Asian Market Recap: Nikkei +0.54%, Hang Seng (0.00%), Shanghai Composite (1.17%) as of 04:10 ET

Jun 24 ,2024

• Synopsis:

  • Asian equities ended mostly lower Monday. Taiwan's Taiex led the region lower with chip stocks down sharply, the Kospi also closed with losses. Hong Kong slid again early on before a late rally, China mainland stocks at four-month lows. Australia closed with losses, Japan's main boards bucked the trend to trade higher, India also in positive territory. US futures turning higher, Europe opened with gains. Dollar lower, yen and yuan little changed. Treasury yields mixed, JGB yields mostly higher. Crude oil futures higher alongside gold, industrial metals mixed.

  • Asia equities starting the week with some losses but it was a quiet session with few big catalysts to change the initial direction. Losses most notable in Taiwan where semiconductor stocks fell following Nvidia's decline on Friday, while South Korea's Kospi was weighed by weakness in the SK group of companies amid growing talk of concentration-risk and sustainability of the current tech rally. In contrast, Japan's boards ended higher as the yen weakened again late Friday to re-test 34-year lows amid more warnings from the government on intervention. BOJ Summary of Opinions revealed some debate over yen depreciation risks but policy implications downplayed.

  • China's fiscal income data Monday laid bare the challenge for Beijing with lower land sales and income tax revenue causing the largest decline in income in more than a year. Elsewhere, Singapore headline inflation inched higher and core steadied but both came in within expectations. RBI minutes from its most recent meeting showed diverging views on whether to keep interest rates at elevated levels.

  • Kadokawa (9468.JP) said it had noted media outlets had published demands from a hacker's ransom demand following a cyber attack last week. Mitsubishi UFG (8306.JP) banking and two joint ventures have been penalized by Japan's financial regulator for violating client confidentiality rules. A Hong Kong court again adjourned a hearing into a petition asking for liquidation of Kaisa Group (1836.HK). Midea Real Estate Holding (390.HK) is to transfer its property developments and sales business into a new privately owned entity with investors to receive shares in the new company or cash. Prudential (2378.HK) is to launch a $2B share buyback and gave an upbeat business outlook.

• Digest:

  • BOJ plan to reduce JGB purchases aimed at restoring market functioning:

    • Summary of Opinions for the June MPM contained several endorsements of a reduction in JGB purchases. Some expressed caution toward upside risks to the inflation outlook, warranting preparation for further policy adjustments. Discussions on economy highlighted near-term softness, highlighting sluggish private consumption/confidence which one member attributed to inflation pressures. However, yen depreciation risks were debated to some extent though generally downplayed policy implications, reaffirming rate-setting decisions are based on a holistic assessment rather than targeting FX. One member suggested it was unlikely that rising import prices will result in a repeat of the cost passthrough wave onto consumer prices seen from 2022 onward. Consensus remains that underlying inflation will likely reach the price stability target in the second half of the projection period. Justification for adjusting JGB purchases were mainly based on restoring market functioning and one member called for sizable reduction in a predictable manner while securing flexibility to ensure JGB market stability. Decision to delay an announcement until the next MPM reflected ongoing sensitivity to the smooth transition out of YCC/QE.

  • China to create emergency rescue fund for financial institutions:

    • Nikkei reported China plans to set up a rescue fund for embattled financial institutions, aiming to prevent a financial crisis triggered by the real estate market slump. Unlike similar funds (deposit insurance) created to protect customers, the purpose of the new fund is to prevent financial institutions from collapsing suddenly that would give rise to systemic risks. Details of the plan to be deliberated by the NPC Standing Committee, which meets Tuesday and the bill is expected to be enacted by year-end. The fund is to gather contributions mainly from financial institutions, including banks and payment services. A government source indicated that the fund will eventually hold hundreds of billions of yuan. In an emergency, PBOC will be able to expand the fund by providing low-interest loans. Article noted capital injections currently handled by local governments by refunnelling proceeds from local government bond issuance originally pledged to infrastructure projects and other purposes. But local governments facing declining revenues due to the real estate slump and financial difficulties would worsen if they issued more bonds to rescue banks.

  • Foreign investors continue to sell Japan equities amid uncertainty over yen/BOJ policy outlook:

    • Bloomberg discussed waning appetite among international investors for Japan equities as the market has stalled since pushing into record highs earlier this year. Cited TSE data showing foreigners were net sellers for four straight weeks through 14-Jun for a cumulative JPY250B ($1.6B). Noted Citigroup and abrdn among those turning more pessimistic on the outlook for corporate governance while BOJ policy trajectory remains uncertain. In contrast, several firms including BlackRock and Morgan Stanley remain optimistic. BofA Global Fund Manager Survey indicated about a third of investors believe the market has peaked. Highlighted concerns over yen depreciation with BOJ rate hikes a key factor. Separately, Bloomberg discussed domestic retail investors are rebuilding long yen positions as the currency weakens back toward the 160 level vs dollar on FX intervention plays and encouraged by verbal warnings from MOF officials. Such trades saw some success ahead of the intervention operations conducted around the end of April. FX policy chief Kanda told reporters Monday that authorities stand ready to intervene 24 hours a day if necessary, in the event of excessive moves based on speculation (Bloomberg).

  • China FDI declines quicken as efforts to woo foreign firms struggle to gain traction:

    • Bloomberg cited Ministry of Commerce data showing China foreign direct investment (FDI) down 28.2% y/y in first five months of the year, picking up pace from 27.9% decline in April. China FDI has been in decline since Jun-2023 and earlier this year dropped to lowest levels in 30 years. Promises by China's leadership to promote more conducive for foreign investment have so far failed to resonate. These include high profile efforts by President Xi to court American executives while central government has repeatedly made pledges to boost market access. However, geopolitical tensions often mentioned as primary deterrent for foreign firms, underscored recently by US and EU imposing new tariffs on China EV imports. China's subdued economic growth, an uncertain regulatory environment for global firms, and higher interest rates elsewhere also discouraging foreign companies. and prompting them to reallocate capital elsewhere.

  • Mainland flows into Hong Kong weigh on yuan, contribute to Hang Seng outperformance:

    • Yuan depreciation pressures have been attributed in large to US-China yield gap with Fed and PBOC moving in opposite policy directions. Anemic Chinese consumer confidence about economic outlook contributing to yuan weakness as low yields entice mainland flows down south (Reuters). Yuan deposits in Hong Kong were already at record high of CNY1.09T ($150B) in April. FX strategists anticipate additional downside pressure on yuan from Chinese firms transferring funds to finance Hong Kong dividend payments during June-July period. Expected Fed pivot and peak in USD rates another factor that may continue to pull mainland funds south due to HKD's peg. Southbound flows and foreign felling also contributing to Hong Kong equities outperforming mainland counterparts - Hang Seng index down 1.2% this month compared to Shanghai Composite's 4% fall. Foreigners have pulled CNY33B ($4.5B) via northbound channel this month while mainland flows via southbound leg have totaled CNY129B.

  • Notable Gainers:

    • +69.9% 3990.HK (Midea Real Estate Holding): to transfer PD&S biz to newly formed entity under group restructuring

    • +6.0% 2378.HK (Prudential): announces launch of $2B buyback

    • +2.9% 9962.JP (MISUMI Group): reports May sales ¥32.90B vs year-ago ¥29.46B

    • +2.8% 3391.JP (TSURUHA Holdings): reports FY operating income ¥49.21B vs FactSet ¥49.00B

  • Notable Decliners:

    • -8.0% 9468.JP (Kadokawa): hackers' ransom demands were reportedly detailed in media reports

    • -2.8% 6862.HK (Haidilao International Holding): CEO June Yang Lijuan resigns, effective 1-Jul

    • -1.3% 500295.IN (Vedanta): Vedanta Resources reportedly denies any plans to sell stake in Vedanta Limited

    • -0.4% 600104.CH (SAIC Motor): president Wang Xiaoqiu reportedly set to replace Chen Hong as chairman

• Data:

  • Economic:

    • New Zealand May trade balance NZ$204M vs revised NZ$3M in April (18:45 ET)

      • Exports +2.9% y/y vs (2.6%) in April

      • Imports +0.6% y/y vs (0.6%) in April

    • Singapore May

      • CPI +3.1% y/y vs FactSet consensus +3.1% and +2.7% in prior month (01:00 ET)

        • Core CPI +3.1% y/y vs +3.1% in prior month

  • Markets:

    • Nikkei: 208.18 or +0.54% to 38804.65

    • Hang Seng: (0.81) or (0.00%) to 18027.71

    • Shanghai Composite: (35.04) or (1.17%) to 2963.10

    • Shenzhen Composite: (37.83) or (2.29%) to 1616.49

    • ASX200: (62.30) or (0.80%) to 7733.70

    • KOSPI: (19.53) or (0.70%) to 2764.73

    • SENSEX: 114.96 or +0.15% to 77324.86

  • Currencies:

    • $-¥: +0.03 or +0.02% to 159.7400

    • $-KRW: (2.11) or (0.15%) to 1387.3000

    • A$-$: +0.00 or +0.15% to 0.6651

    • $-INR: (0.07) or (0.08%) to 83.5026

    • $-CNY: (0.00) or (0.01%) to 7.2608