Jul 04 ,2024
Synopsis:
Asian equities ended mostly higher Thursday in a quiet session. Gains in Japan, which saw its Topix reach a new record high just a point below 2.9K. Australia, South Korea and especially Taiwan with strong gains; India at new records, Southeast Asia all higher. Hong Kong with a small gain, mainland China boards saw another down day. US futures flat with markets closed today, Europe extending recent gains at the open. US dollar a smidge lower, Treasury yields lower, JGBs and other Asia bond yields sinking. Weakness in oil and gold, industrial metals mixed.
Asia stocks, as measured by the MSCI Asia ex-Japan index, hit more than two-year highs Thursday but on much reduced volume ahead of a politically-charged end of week and weekend, and non-farm payrolls in the US Friday. A holiday in the US today also curtailed trading while growing political uncertainty in Washington over President Biden's future added to jitters. Nevertheless, equities carrying over the improved sentiment on Wall Street overnight to finish on a strong note.
Quiet on the catalyst front. EU-China trade tensions continue to escalate on reports the EU is weighing the removal of the duty-free threshold for online purchases, impacting Chinese e-commerce platforms like Temu, AliExpress and Shein. Australia exports rose on higher mineral and ore shipments with imports also higher. Hong Kong's PMIs fell deeper into contraction in June with output declining the fastest in more than two years.
Kawasaki Heavy Industries (7012.JP) is under investigation over alleged bribery to secure submarine repair contracts. Nissan Motor (7201.JP) and Honda Motor (7267.JP) are exploring a partnership to jointly develop operating systems and other auto-based software. New World Developments (17.HK) and Far East Consortium (35.HK) are selling a residential project at the lowest price in eight years amid high inventory. Hanmi Science's (008930.KS) largest shareholder Shin Dong-guk has increased its stake via a 6.5% sale of shares from the founder's wife and daughter.
Digest:
Topix hits record high as value plays outperform:
Topix index closed at an all-time high 2,898.5 Thursday, surpassing the prior record 2884.40 that has stood since December 1989 during the bubble era. Nikkei also hit fresh high 40,913.65, topping the 40,888 printed on 22-Mar. Bloomberg noted that despite some trepidation toward BOJ policy tightening and the risk of yen intervention, the broader catalyst has been corporate governance attracting international interest. Cited BofA's fund manager survey for June showing Japan remains a favorite market in Asia. Nikkei highlighted value outperformance, spearheaded by banks and insurers amid prospects for higher rates. Topix value index is up 27.6% YTD, compared with growth index gains of 17.4% and the aggregate Topix index up 22.5%. Noted some concerns about negative impacts on stocks outside of financials, though countered with thoughts that bearish sentiment would diminish if the broader market advances alongside solid economic fundamentals, conditional on a virtuous wage/inflation cycle. Also added to FX discussions, mentioning conservative corporate assumptions point to windfall profit gains, while weak yen stands to enhance attractive values in home currency terms for international investors.
Trump's proposed China tariffs has strategists weighing market, economic impact:
Donald Trump's emergence as favorite to win US election inviting more attention on his economic and trade policies, including his proposal to impose up to 60% tariffs on Chinese imports. Strategists have weighed likely impact of Trump's tariffs with UBS seeing only limited direct impact. Estimated ~0.5% direct impact on listed company earrings assuming some passthrough, or 1% earnings impact if 60% tariffs are fully absorbed, pointing out many companied have diversified their supply chains. However, also warned of negative secondary effects that have not been fully accounted for, such as likely fall in investor sentiment, and higher unemployment from closure of export businesses or if affected exports are sold domestically. More broadly, escalation in tariffs could further chill foreign investment in China with inbound FDI having already fallen for 12 straight months (Bloomberg). FX strategists have also recently highlighted downside risks to yuan if a Trump tariff hike is followed by retaliatory devaluation to offset impact.
India stocks achieve milestones and may go higher amid boost from upcoming budget:
Sensex crossed 80K mark intraday for first time on Wednesday, achieving milestone in 138 sessions after first touching 70k mark and 58 sessions after reaching 75k level. Notably Sensex has completed ascent of nearly 10k points or 14% in just a month from election results day low of 70,234 on 4-June. Nifty 50 also ended at an all-time high. Indian equities have been buoyed by hopes that new coalition government will stick with economic agenda, stimulate growth and capital expenditure (BusinessStandard). Robust demand from both foreign and domestic institutional investors, macroeconomic tailwinds, and healthy corporate earnings outlook have propelled both indexes to double-digit gains YTD. Bloomberg added the $5T stock market stands to rise as much as 20% for entire year. Survey of strategists and investors showed upcoming budget will likely boost consumer spending and infrastructure building. Less-dominant majority for Modi's BJP has prompted investors to raise bets in consumer sector on expectations government will tilt toward more populist measures to ramp up support.
Japan to launch new floating-rate bonds from FY26:
Reuters, citing two government sources, reported MOF will aim to issue floating rate notes from FY26 to help mitigate the risk of rising yields, in a sign that policymakers are gearing up for further rate hikes. BOJ tapering of JGB purchases also poses upside risk for yields. New note to have short-term duration with 2y and 5y tenors seen as possible options. Such bonds were issued in the past with a 15-year maturity. Further details to be determined after discussions with investors. Follows a few developments on fiscal policy after FY23 revenues were consolidated. Nikkei reported earlier that the general budget resulted in a settlement surplus of JPY0.9T ($5.6B) with deficit-covering bond issuance to be cut by as much as JPY9.5T. Tax revenues logged a surplus of JPY2.5T while non-tax revenues surpassed budget estimates by JPY1.7T on rising yields and transfers from BOJ. Unused funding projected at ~JPY6.9T, following JPY11.3T in FY22. Nikkei also reported LDP discussing postponement of tax hikes to fund defense expansion plans with a lower house election looming and voter support for incumbents languish over the fundraising scandal.
Notable Gainers:
+6.6% 008930.KS (Hanmi Science Co.): Shin Dong-guk reportedly to acquire 6.5% stake in Hanmi Science from Hanmi founder's wife, daughter for KRW164.4B
+4.5% 7201.JP (Nissan Motor): Nissan Motor, Honda Motor reportedly exploring partnership to jointly develop operating systems and other automotive software
+3.5% 1821.HK (ESR Group): bidders reportedly in talks to bring in other partners for potential buyout
+1.9% 8111.JP (GOLDWIN): issues new mid-term management plan; guides FY29 operating profit ¥36.00B vs FactSet ¥31.56B
+0.8% 402340.KS (SK Square Co.): reportedly to appoint Han Myung-jin, head of investment support center, as new CEO; South Korean grocery platform Oasis reportedly looks to buy 11Street
Notable Decliners:
-9.3% 9627.JP (Ain Holdings): to acquire 100% share of Francfranc from Seven & i and asset managers for ¥49.98B
-7.3% 7012.JP (Kawasaki Heavy Industries): reportedly under investigation over alleged bribery in securing submarine repair contracts
-4.6% 2678.JP (ASKUL Corp): reports FY operating profit ¥16.95B vs FactSet ¥17.04B
Data:
Economic:
Australia May
Trade balance A$5.77B vs consensus A$6.33B and revised A$6.03B in April
Exports +2.8% y/y vs (2.5%) in April
Imports +3.9% y/y vs (7.2%) in April
Markets:
Nikkei: 332.89 or +0.82% to 40913.65
Hang Seng: 49.71 or +0.28% to 18028.28
Shanghai Composite: (24.81) or (0.83%) to 2957.57
Shenzhen Composite: (25.46) or (1.58%) to 1582.59
ASX200: 91.90 or +1.19% to 7831.80
KOSPI: 30.93 or +1.11% to 2824.94
SENSEX: 175.73 or +0.22% to 80162.53
Currencies:
$-¥: (0.43) or (0.27%) to 161.2320
$-KRW: (8.26) or (0.60%) to 1379.3500
A$-$: +0.00 or +0.24% to 0.6722
$-INR: (0.01) or (0.02%) to 83.5052
$-CNY: (0.00) or (0.00%) to 7.2695
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