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StreetAccount Summary - Asian Market Recap: Nikkei (0.82%), Hang Seng (2.06%), Shanghai Composite (0.90%) as of 04:10 ET

Jun 27 ,2024

• Synopsis:

  • Asian equities ended broadly lower Thursday. Sharp declines for the Hang Seng, which is back at two-month lows; mainland boards also weak again today. Tech-dominated benchmarks also lower with Seoul and Taipei down, Japan nosediving first thing before modest recovery, Australia also sharply down at the open before a steady rally into the close. India markets bucking trend to trade at record highs. Southeast Asia mixed. US futures lower, Europe's day off to a bright start. US dollar off overnight peaks, yen on tenterhooks over potential intervention but still near 38-year low; yuan weaker again. Treasury yields higher, JGB 10Y yield holding above 1.0%, CGB 10Y yields edged close to record lows. Crude futures slightly higher, precious metals flat, base metals mixed.

  • Asia markets showing significant weakness Thursday amid more currency weakness overnight and sharp selloffs in Japan, Hong Kong and Australia. The Hang Seng's losses were notable in an across-the-board 2%-plus selloff with growing uncertainty over China's monetary outlook also forcing the offshore yuan to weaken again today. Mainland China shares unstitching yesterday's positive day to end lower amid more poor economic data, this time in May's industrial profits. Tech stocks selling off on read through from Micron's sharp after-hours selloff. On the positive side, India stocks at record highs as the Sensex reached 79K and the Nifty rose above 24K for the first time.

  • Yen weakness the big story in FX markets after it fell to its lowest against the dollar since 1986 and hit a record low versus the euro. More words of warning from forex chief Kanda and finance minister Suzuki today made slight inroads over Thursday to push the yen slightly higher however most analysts agree no quantitative action is likely until US PCE data is published tomorrow at the earliest. The yuan also lower again following another weak mid-point setting by the PBOC first thing while other Asia currencies dipped.

  • In macro developments, Japan retail sales rose for a second month and lifting Q2 trajectory. However, also concerns Japan Q1 GDP may be sharply downgraded following unscheduled revision to Q1 GDP on 1-Jul. New Zealand business confidence shrunk again though pricing pressures continued to ease. China YTD industrial profit growth slowed from prior month while the city of Beijing became the final 'mega-city' to lift residential ownership restrictions but analysts remained skeptical of its potential impact.

  • Toyota Motor (7203.JP) said May global auto production fell 4.1% y/y to 812K units mainly caused by a sharp drop in overseas production. SK Bioscience's (302440.KS) Germany-based unit is to buy a stake in IDT Biologika for around KRW318B from Klocke, launches 1.5M share placement to raise €51M. Vedanta Resources to sell stake in its mining unit Vedanta Limited (500295.IN) to institutional investors, reversing a 'strong denial' statement last week. Bharti Airtel (532454.IN) bought telecom spectrum from the India government worth INR $68.57B ($820M).

• Digest:

  • Yen falls to lowest since 1986 vs dollar, heightening intervention risk ahead of US PCE:

    • Heightened attention on yen overnight after trading as low as 160.82 per dollar to mark the weakest since December 1986. Yen also sank to 171.81 vs euro, the lowest since September 1992. With no specific catalysts, latest move was attributed to ongoing rate differentials while analysts pointed to traders testing MOF's tolerance threshold (Reuters). Nikkei discussed how yen pressures had been building over the past week on the back of relatively hawkish Fedspeak. Yen inclusion to a US monitoring list for potential manipulation was also cited as a factor constraining FX intervention though was downplayed by FX policy chief Kanda and some market commentators. Kanda told reporters late Wednesday that he has "serious concern" about rapid yen weakness and "closely monitoring market trends with a high sense of urgency," reaffirming persistent verbal warnings (Bloomberg). Markets increasingly bracing for another round of intervention though Bloomberg yesterday discussed doubts that MOF would act before Friday's US PCE data. In the meantime, participants monitoring for 'rate checks' as a signal for imminent action.

  • Beijing relaxes property restrictions, but skepticism abounds:

    • Mixed reaction to news late Wednesday of Beijing joining other tier-1 Chinese cities in easing property rules. Beijing to cut down payment ration by 10% for first home buyers and lowered mortgage rate floor rate (Bloomberg). Measures drew underwhelming response with Nomura noting they came a month after Shenzhen and Shanghai and unlike those two cities Beijing did not change local home-purchase restrictions. JP Morgan also pointed to Beijing's delay and while it anticipates measures will help boost to home sales, recovery may prove short-lived. Property market remains hamstrung by issues such as depressed homebuyer confidence, weak incomes and uncertain job prospects, accelerating property price declines, excess supply, insufficient government/central bank funding, and limited bank lending appetite. China home sales fell by more than 20% y/y in May after property easing measures were announced by Beijing, prompting calls for more support. Property developers continue to underperform with Hang Seng Mainland Properties index down 8% month-to-date compared to main index's 2% drop.

  • Indian government bonds to be included in JP Morgan index on Friday:

    • Indian government bonds to be included in JP Morgan EM index from 28-Jun. Indian bonds will have initial weighting of 1%, which will gradually rise to 10% over next 10 months. Analysts continue to dissect likely impact of index inclusion. India's inclusion will force an index reweighting with JP Morgan estimating EM Asia's weight rising from 39.2% to 46.7% Mar-25 while EMEA EM to become lowest weighted region. Indian bonds have already experienced an estimated $10B of foreign inflows since index inclusion was announced in Sep-2023 there are estimates $20-30B more will flow through over next 10 months. HSBC argued bulk inflows still yet to materialize with foreign positioning lower than implied by potential index weights. Foreign demand seen keeping a lid on sovereign yields, particularly as investors look ahead to an RBI pivot and Indian government sticking to fiscal restraint. BNP Paribas anticipates lower borrowing costs will help facilitate increased corporate issuance. Added that domestic banks may also experience gradual reduction in bond holdings as part of Statutory Liquidity Ratio (SLR) reserve requirements, allowing them to more freely allocate capital to productive parts of the economy.

  • Asia M&A fees sink to 11-year low:

    • Reuters cited LSEG data showing Asia M&A fees totaled $1.5B in H1, marking the lowest since 2013. Little evidence of a rebound in the pipeline with announced deals also down 25% y/y to $317.5B. Japan alone accounted for 40% of M&A fees though announcements dropped 23% to $61B amid weaker yen. China M&A fell 25% to $108B, a post-2012 low. M&A completions were $253B, the lowest since 2009 in the wake of the global financial crisis. Asia tally contrasts with global activity, which grew 16% to $1.5T. Article noted thoughts that investors are favoring smaller deals with some hopes for higher activity towards the end of this year driven by private equity, take-privates and digital infrastructure investments. BofA suggested activity is a function of broader capital markets activity and Q2 early-stage M&A discussions are picking up. H1 weakness contrasts with sharp 2023 growth in Japan, where sentiment toward M&A remains bullish. Recall the government is working on law changes to allow for equity considerations to be included in offshore deals as early as 2025.

  • China profit growth slows, but NBS highlights silver linings:

    • Industrial profits rose 0.7% y/y in May, down from 4.0% in the previous month, taking YTD growth to 3.4% from 4.3% to mark the softest pace this year. NBS highlighted positive developments, attributing slower YTD growth to short-term factors such as declining investment income growth while gross operating earnings picked up. Upbeat analysis concentrated on accelerating revenue growth, while 80% of sectors achieved profit growth. Aggregate earnings skewed down by mining, though declines eased. Manufacturing profits continued to grow at a steady pace while utilities rose sharply. Noted equipment manufacturing as a key growth driver with YTD profits accelerating 8.1 ppt to 11.5% on the back of tech and green developments. Electronics a notable bright spot reflecting strength in smartphones, high-tech and autos. Consumer goods manufacturers maintained double-digit profit growth with all 13 major sub-groups contributing positively. Steel sector swung to gains as prices rebounded and NBS expects further improvements from the large-scale equipment trade-in/upgrade program. Positive signs in gross margins as unit costs logged the first decline in both sequential and year-ago terms this year. In contrast, press takeaways were skeptical, raising questions about sustainability (Bloomberg).

  • Notable Gainers:

    • +8.0% 302440.KS (SK bioscience Co.): SK bioscience Germany to acquire 60.6% stake in IDT Biologika for KRW318.57B (€0.21B)

    • +5.1% 3998.HK (Bosideng International Holdings): reports FY revenue CNY23.21B vs FactSet CNY21.70B

    • +4.8% 000656.CH (Jinke Property Group Co.): CICC intends to participate in company's restructuring plan

  • Notable Decliners:

    • -18.5% 2252.HK (Shanghai MicroPort MedBot (Group)): launches 12.9M H share placement at HK$9.10 per H share

    • -1.8% 035420.KS (NAVER): Webtoon Entertainment, Inc. 15.0M-share IPO priced at $21/share

    • -0.8% 6753.JP (Sharp Corp): president and CEO Po-Hsuan Wu to step down

    • -0.4% 7203.JP (Toyota Motor): reports May global production (4.1%) y/y to 812,191

    • -0.1% 316140.KS (Woori Financial Group): confirms signing MOU with major shareholders of Tongyang Life Insurance, ABL Life Insurance

• Data:

  • Economic:

    • China

      • Jan-May industrial profits YTD +3.4% y/y vs +4.3% in prior month

        • May industrial profits +0.7% y/y vs +4.0% in prior month

    • Japan

      • May retail sales +1.7% m/m vs consensus +0.8% and revised +0.8% in prior month

        • Retail sales +3.0% y/y vs consensus +2.0% and revised +2.0% in prior month

    • New Zealand

      • June ANZ Business Confidence +6.1 vs +11.2 in May

  • Markets:

    • Nikkei: (325.53) or (0.82%) to 39341.54

    • Hang Seng: (373.46) or (2.06%) to 17716.47

    • Shanghai Composite: (26.67) or (0.90%) to 2945.85

    • Shenzhen Composite: (27.44) or (1.67%) to 1614.03

    • ASX200: (23.40) or (0.30%) to 7759.60

    • KOSPI: (7.99) or (0.29%) to 2784.06

    • SENSEX: 288.42 or +0.37% to 78962.67

  • Currencies:

    • $-¥: (0.26) or (0.16%) to 160.5450

    • $-KRW: (8.32) or (0.60%) to 1385.6700

    • A$-$: +0.00 or +0.23% to 0.6665

    • $-INR: (0.18) or (0.22%) to 83.4739

    • $-CNY: +0.00 or +0.04% to 7.2678