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StreetAccount Summary - Asian Market Recap: Nikkei (3.28%), Hang Seng (1.77%), Shanghai Composite (0.52%) as of 04:10 ET

Jul 25 ,2024

• Synopsis:

  • Asian equities sold off sharply Thursday with losses across the region. Japan's benchmarks fared worst as the Nikkei slumped 3.3% and the Topix 3.0%. More sharp falls for the Hang Seng, mainland China markets also lower. South Korea and Australia led down by tech names, India touching three-week lows but off its trough, Southeast Asia all with losses although relative outperformers. Taipei remained closed as a typhoon struck. US futures flat, Europe sharply lower in the first hour. US dollar lower, yen strengthened sharply again, yuan weaker following PBOC move. Treasury yields mostly weaker, JGB yields mixed. Crude oil futures again under pressure, precious metals sharply down. More weakness in iron ore, copper below $9K/t. Cryptocurrencies down sharply.

  • Asia equities significantly lower Thursday with several indices breaking long-held support lines or approaching a technical corrective phase. Japan's Nikkei now down 9.2% from its 52-week high and a notable underperformer versus the broader Topix as it also fell through its 50D line. Nikkei weighed by double-punch of a technology selloff and stronger yen that today rallied to its highest against the dollar since May and is also notably stronger against other major currencies. Hang Seng entered a technical correction last week and saw another sharp decline today led by energy names. Other technology-orientated boards such as South Korea and Australia also underperformed.

  • China markets also worried by the PBOC's surprise cut to its MLF rate and injection of CNY200B into in medium-term liquidity. Its operation took markets by surprise and raised more questions about why Beijing chose to cut rates in an out-of-schedule operation, and followed Monday's surprise 10 bp reduction to 7D reverse repo rates. In economic developments, South Korea Q2 GDP unexpectedly shrank as fall in consumption offset export growth but the government also proposed tax changes to support the economy. Japan services PPI inflation topped 3% for first time since 2015.

  • Honda Motor (1585.JP) is to cut production capacity in China of internal combustion engine cars by a third as increased competition weighs. LG Energy Solution (373220.KS) warned its earnings would fall 20% this year and it would ease back on capacity expansion because of a sharper than expected slowdown in EV demand. SK Hynix (000660.KS) posted its highest quarterly profit since 2018, forecast demand will rise in H2, capex also to be more than expected. ANZ (ANZ.AU) said internal investigations into bond sales have found errors in data reporting but no evidence of market manipulation.

• Digest:

  • PBOC announces unscheduled MLF rate cut:

    • Bloomberg cited a PBOC statement unexpectedly cutting the 1-year MLF rate by 20 bp to 2.3%, marking the first reduction since August 2023. Followed 10 bp cuts to the 7-day reverse repo rate and LPRs Monday. Lower MLF rate was applied to CNY200B in new funding after draining net CNY3B in the regularly scheduled operation on the 15th. Sequence was broadly consistent with an apparent phase-out of MLF as a policy target in favor of the 7D reverse repo rate. Latest Bloomberg consensus poll conducted on the heels of Monday's rate cuts found 10 out of 18 respondents look for another 10 bp reduction in the 1-year LPR in Q4 while the remainder see no change. Forecasts split on the 5-year rate between a 10 bp cut and no change. Main readthrough was that easing expectations continued in the wake of Monday's activity, albeit mild. Implications for yuan and bank NIMs were again cited as the main constraints against more aggressive easing. Yet, current pace seen unlikely to stimulate loan demand, sustaining calls for more support.

  • Asia tech earnings beats overshadowed by global stock rout:

    • SK Hynix (000660.KS) and Renesas Electronics (6723.JP) selling off sharply Thursday despite better than expected earnings. SK Hynix in particular beat StreetAccount consensus Q2 metrics. DRAM revenue came in higher than expected, outweighing a miss in NAND. Guidance remained upbeat on AI in H2 and signaled upgrade to FY24 capex plans. Bloomberg attributed price action to the rout in global tech stocks, triggering a notable setback to SK Hynix's 47% gains YTD through Wednesday, mirroring performance among many AI peers. Reuters take was also broadly positive, highlighting operating profits were the highest since 3Q18 as revenue soared 125% y/y to a record high KRW16.4T. Renesas Q2 metrics were also above StreetAccount consensus. However, Nikkei focused on sharp declines in H1 earnings, attributed to sluggish China economy translating to weak demand for factory automation. Noted revenues logged a moderate decline, though supported by yen weakness, while underlying semiconductor sales were soft, reflecting flagging growth in global EV demand.

  • Japan services PPI inflation strongest since 2015:

    • Services PPI rose 3.0% y/y in June, above consensus 2.6%. Follows revised 2.7% in the previous month, hitting 3% for the first time since 2015 and was the biggest increase since September 1991 excluding consumption tax hike effects. Main incremental drivers were accelerated advertising prices, and doubling growth rate in hotels (latter fitting with ongoing resurgence in inbound tourism). Real estate services, finance & insurance and leasing & rental added mild contributions. Outweighed easing in transportation/logistics. Recent strength contrasting with generally stable CPI service prices tracking stably just below 2%. BOJ attention has shifted more toward underlying dynamics, particularly on the permeation of wage hikes. Recall the April Outlook Report confirmed wage increases among the factors underpinning core CPI inflation. Yet FY25 horizon was more focused on the net effects of waning import cost-push vs recent rise in crude oil prices and waning effects of government inflation relief measures. Underlying fundamentals seen improving gradually with the output gap and building inflation expectations. Near-term implications for next week's BOJ meeting limited given private consumption weakness has been widely cited as the main constraint against a rate hike.

  • South Korea government proposes tax changes to help with stocks, economy and demographics:

    • South Korea's government has proposed string of tax code changes aimed at supporting long-term economic development, address dire demographics, and aid support of its stock market. Proposals include reduction of inheritance tax to reflect changes in asset values and inflation, tax credits for marriages and child births, extension of tax credits for R&D projects (Yonhap, Bloomberg). However, several measures expected to see opposition including tax cuts for high income earners, scrapping of provision for controlling shareholders to pay more inheritance tax, which is aimed at supporting 'Value-up' stock valuation program. Combined, will contribute to slashing state tax revenue by KRW4.35T ($3.14B) over five years. Addressing falling birthrates, government will provide tax credits to KRW1M per married couple, push for tax benefits for childbirth and home purchases by married couples. Proposals to be submitted to parliament in late August.

  • Negative signals for global economic growth:

    • Economic data and corporate developments driving pickup in concerns about slowing global economic growth. Flash PMIs across US, Europe and Asia showed manufacturing activity shrank in July amid declines in output and new business. Growth in major Asian trading economies South Korea, and Japan increasingly reliant on AI-driven demand for chip and chip-related exports as household consumption remains a drag. Some thoughts China's rapid fire rate cuts this week convey growing policymaker concern about a deteriorating domestic and external economic backdrop. Corporate results in US and Europe also signaling risks to consumption outlook amid card spending slowdown, weak restaurant traffic and China-driven weakness in luxury retail. Economic bellwethers in commodities space notably lower in July with copper down 7% month-to-date to lowest since early April. Crude down to lowest since mid-June. Iron ore below $100 for first time since April, reflecting disappointing Third Plenum takeaways and ongoing property market deterioration.

  • Notable Gainers:

    • +8.0% 1357.HK (Meitu Inc): guides H1 adjusted net income to increase by not less than 80% y/y

    • +5.5% 4684.JP (OBIC Co.): reports Q1 net income attributable ¥16.78B vs FactSet ¥15.48B

    • +4.6% 4967.JP (Kobayashi Pharmaceutical): holder Oasis Management discloses 5.20% stake

    • +2.8% 540719.IN (SBI Life Insurance): reports Q1 profit after tax INR5.20B vs FactSet INR4.15B

    • +2.6% 005490.KS (POSCO): reports Q2 operating profit KRW752B vs StreetAccount KRW701.11B

    • +0.3% 086280.KS (Hyundai GLOVIS Co.): reports Q2 operating profit KRW439.29B vs FactSet KRW420.62B

  • Notable Decliners:

    • -13.6% 6723.JP (Renesas Electronics): reports Q2 non-GAAP operating profit ¥110.6B vs year-ago ¥129.1B

    • -11.8% 000150.KS (Doosan): FSA requests Doosan Robotics to submit revised securities report for merger of Doosan Bobcat

    • -6.4% 532215.IN (Axis Bank): reports Q1 standalone profit after tax INR60.35B vs StreetAccount INR63.20B

    • -4.5% 1359.HK (China Cinda Asset Management): guides H1 net income attributable to decline 40-50% y/y

    • -3.9% 352820.KS (HYBE Co.): reportedly names chief strategy officer Lee Jae-sang as new CEO following Park Ji-won's resignation

    • -2.8% 7267.JP (Honda Motor): reportedly to cut production capacity for gas cars in China by one-third, equivalent to 10% of global output

• Data:

  • Economic:

    • Japan

      • June services PPI +3.0% y/y vs consensus +2.6% and revised +2.7% in prior month

    • South Korea

      • Q2 GDP (0.2%) q/q vs consensus +0.1% and +1.3% in prior quarter

        • GDP +2.3% y/y vs consensus +2.5% and +3.3% in prior quarter

  • Markets:

    • Nikkei: (1,285.34) or (3.28%) to 37869.51

    • Hang Seng: (306.08) or (1.77%) to 17004.97

    • Shanghai Composite: (15.21) or (0.52%) to 2886.74

    • Shenzhen Composite: 1.12 or +0.07% to 1547.41

    • ASX200: (102.50) or (1.29%) to 7861.20

    • KOSPI: (48.06) or (1.74%) to 2710.65

    • SENSEX: (154.71) or (0.19%) to 79994.17

  • Currencies:

    • $-¥: (1.85) or (1.20%) to 152.0450

    • $-KRW: (3.53) or (0.26%) to 1380.1000

    • A$-$: (0.00) or (0.64%) to 0.6538

    • $-INR: (0.06) or (0.07%) to 83.6853

    • $-CNY: (0.04) or (0.56%) to 7.2223