Jul 19 ,2024
Synopsis:
Asian equities ended mostly lower Friday. Losses most pronounced in Hong Kong, which saw its main Hang Seng index fall more than 2%, mainland bourses showed small gains with 'National Team' likely to be active again as they have been all week. More steep losses in Seoul and Taipei, Australia lower, India seeing some profit taking. Some small gains in a couple of Southeast Asia boards. US futures indicating a lower open and taking a leg down on news of Crowdstrike outage broke, Europe opened lower. US dollar a little higher, yen now flat after weakening earlier, other Asia currencies mostly lower. Treasury yields mixed. Crude oil futures, precious and base metals all under pressure again.
Asia technology-leaning boards extending losses over the day. South Korea Kospi down 2.7% for the week, Taiwan's Taiex 3.8% lower with TSMC dropping sharply over the day despite beating on revenue estimates and upping FY forecasts post close Thursday. Hong Kong under more downside pressure and lost 4.7% over the week, first as economic data for Q2 and June disappointed, and on Friday with another step down on disappointment over lack of market-supporting news from the CCP Plenum.
In macro news, Japan core inflation rose a bit less than expected with the ex-food and energy measure in-line. Malaysia's Q2 GDP growth was better than expected at 5.8%, its fastest pace of growth since Dec-22. India's central bank warned over the temptation to abandon its battle against inflation.
Mitsui (8031.JP) is to invest JPY4B for 15% stake in SATS (S58.SP) to produce and wholesale frozen food in Asia. Catcher Technology (2474.TT) confirmed government prosecutors visited the firm Thursday over an investigation into its CEO and alleged insider trading. Samsung Electronics (005930.KS) restarted talks with the union organizing strikes across its chipmaking plants on Friday. Infosys (500209.IN) posted stronger-than-expected Q1 earnings and raised its annual revenue forecast. Yoma Strategic Holdings' (Z59.SP) CEO Serge Pun was reportedly detained in Myanmar; stock down sharply.
Digest:
Japan core inflation rises by less than expected as markets weigh rate hike prospects:
Japan core inflation rose to 2.6% y/y in June from 2.5% in prior month, slightly less than 2.7% consensus. Ex-food and energy inflation climbed to an in-line 2.2% from 2.1%. Overall inflation unchanged at 2.8% against expectations for an uptick to 2.9%. Electricity and gas notable contributors following end of utility subsidies. Discretionary goods categories softened with furniture and household items and clothing and footwear inflation slowing while culture and recreation prices shrunk at a steeper pace. Data comes as speculation continues whether BOJ will accompany JGB taper details with a rate cut at this month's meeting. Markets pricing in ~50% chance of a July rate hike though also view central bank will wait amid weak consumption demand. Former BOJ executive Hayakawa said he believes central bank likely to forego July rate hike in favor of larger JGB taper. Argued that would also convey hawkish bias and fuel upward pressure in yields, which may help counter yen weakness (Bloomberg).
China Third Plenum reaffirms high-level policy goals as leaders brace for slower growth:
Chinese leaders concluded twice-a-decade policy meeting on Thursday as Xinhua released a communique that reaffirmed wide-ranging high-level economic policy goals with scant details while warned of economic risks and called for stronger social controls. Bloomberg noted communique said vague slogan of "high-quality development" mentioned as top mission and typically interpreted to emphasize quality of economic growth over absolute number. Strategists said it could mean tolerance for period of modestly slower growth remains in place and strong short-term stimulus seems unlikely. Reuters added authorities wanted to improve social security, healthcare and income distribution and introduce land, tax, and financial system reforms, policy goals that have been made over past decade and re-emerged amid growing economic challenges, which analysts said there was no clear signal of change in macro policies. FT noted security risks given same level of importance as economic growth amid heightened geopolitical tensions. Meanwhile there was no reference to consumer demand. More details of any reforms will be issued in separate report a few days later after the communique.
Analysts remain bullish on TSMC, upgrade price targets following Q2 earnings:
Sell-side takeaways from TSMC's (2330.TT) Q2 earnings were largely positive with several analysts retaining bullish calls and upgrading their price targets. Lot of focus was on GM beat and revenue guidance raise on strong demand for cloud accelerators and high-end smartphones. FY capex guidance range narrowed to high end of prior range. Company positive on 2025 wafer price increases with demand for AI accelerators outstripping supply through 2025. Cost control also factor underpinning stronger-than-expected GM guidance. Some analysts saw scope for even more aggressive price increases coupled with higher capacity utilization, driven by AI and high-end smartphone-related demand. Geopolitical risks brought into focus by Trump's Taiwan remarks, which were cited for stock's pullback from record highs this week. In response, company said no plans for US JV. Analysts also downplayed geopolitical risks, seeing stock re-rating higher on AI as a secular growth driver.
RBI says India must lower inflation to sustain its economic growth:
India's central bank said country must focus on bringing inflation down to 4.0% target over easing monetary policy to boost growth in short term given high uncertainty over inflation outlook. RBI warned in monthly bulletin that abandoning inflation fight could result in it losing credibility and trigger surge in inflation which would undermine growth sustainability. Added spikes in food prices behind recent revival in inflation and offsetting progress in lowering fuel and core inflation although good monsoon rains this season may ease prices and revive rural demand. Separately, Reuters reported RBI also increased its natural rate of interest post Covid and driven by potential output growth. Said natural rate was 1.4-1.9% in Q4 2023/24 from 0.8-1.0% in Q3 2021/22, most recent time it adjusted rate. Analysts said natural rate is reference point for monetary policy, may limit scope to ease rates in near term.
Malaysia Q2 GDP growth strongest in six quarters:
Malaysia's Q2 GDP grew 5.8% versus expectations of 5.1%, building on Q1's 4.2% expansion and at its fastest pace since Q4-22. All sectors grew: services by 5.6% from Q1's 4.7%, manufacturing increased by 4.7% from 1.9%, agriculture expanded 7.1% from 1.6%, while mining and construction sectors also grew. On q/q basis, GDP grew 0.7% from 3.1% contraction in Q1. Growth momentum consistent with recent forecasts from Bank Negara Malaysia as well as external institutions such as the IMF, also comes on back of large-scale investment pledges from Google, Microsoft, and near conclusion of talks to establish SEZ in border region with Singapore. Bloomberg cited analyst saying country set to benefit from 'trifecta of positives' this year with improving private investment, external demand recovery, and resilient consumer spending set to continue.
Notable Gainers:
+10.0% 9992.HK (Pop Mart International Group): guides H1 revenue to increase by no less than +55% vs prior year's CNY2.81B, implying CNY4.36B vs FactSet CNY3.93B
+4.8% 2206.JP (Ezaki Glico): holder Dalton Investments discloses 5.06% stake
+1.8% 9627.JP (Ain Holdings): won't need to raise capital to fund acquisition of Francfranc
+0.0% 3377.HK (Sino-Ocean Group Holdings): signs restructuring support agreements with some creditors
Notable Decliners:
-8.8% Z59.SP (Yoma Strategic Holdings): chairman Serge Pun reportedly detained in Naypyitaw; company clarifies Pun is cooperating with authorities while staying at accommodation provided, and no charges have been filed against him
-8.2% 2474.TT (Catcher Technology): confirms government prosecutors visited firm on 18-Jul for investigation
-8.0% 383220.KS (F&F Co.): MOVIN SARL files lawsuit in UK against F&F, seeking KRW370.62B in damages
-4.6% 6146.JP (DISCO Corp): reports Q1 revenue ¥82.80B vs FactSet ¥83.79B, operating income ¥33.38B vs FactSet ¥34.42B
-3.5% 2330.TT (Taiwan Semiconductor): reports Q2 results; guides Q3 revenue $22.4-23.2B vs FactSet $22.50B
Data:
Economic:
Japan June
Nationwide core CPI +2.6% y/y vs consensus +2.7% and +2.5% in prior month
CPI excl. fresh food & energy +2.2% y/y vs consensus +2.2% and +2.1% in prior month
Overall CPI +2.8% y/y vs consensus +2.9% and +2.8% in prior month
Markets:
Nikkei: (62.56) or (0.16%) to 40063.79
Hang Seng: (360.73) or (2.03%) to 17417.68
Shanghai Composite: 5.18 or +0.17% to 2982.31
Shenzhen Composite: 5.48 or +0.34% to 1610.07
ASX200: (64.90) or (0.81%) to 7971.60
KOSPI: (28.89) or (1.02%) to 2795.46
SENSEX: (421.01) or (0.52%) to 80922.45
Currencies:
$-¥: (0.02) or (0.01%) to 157.3450
$-KRW: +1.20 or +0.09% to 1387.2500
A$-$: (0.00) or (0.15%) to 0.6694
$-INR: (0.06) or (0.07%) to 83.6321
$-CNY: +0.01 or +0.09% to 7.2670
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