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StreetAccount Summary - Asian Market Recap: Nikkei +0.15%, Hang Seng (1.37%), Shanghai Composite (0.43%) as of 04:10 ET

Jul 30 ,2024

• Synopsis:

  • Asia stocks ended mixed Tuesday. Japan's main boards giving up some of yesterday's gains, Hang Seng also capped a two-day rally with a steep loss, mainland China fell to six-month lows. South Korea lower, Taiwan gained a little into the close. India and New Zealand bucked the trend to post small advances. US futures point to a lower opening, Europe a few points higher in early trades. US dollar flat, yen weaker, other Asia currencies flat. Treasury yields mixed, JGB yields down, CGB 10Y yield at record low. Crude futures down, precious metals lower, base metals lower again with one commodities benchmark now showing a loss year to date.

  • Asia equities lower across the board Tuesday as risk-off sentiment prevailed ahead of key central bank decisions and economic data points. Wall Street's lackluster performance overnight, accompanied by a dip in futures ahead of today's session also weighed, as did a modestly higher US dollar overnight. Regional focus this week now firmly on the BOJ's decision tomorrow with economists still split on whether it will hike rates or not, and on detailed plans for its quantitative tightening program. China's PMIs also a risk point for Greater China markets, leading traders in Hong Kong to resume selling following two days of gains.

  • China's bond markets advanced further to send yields on the 10Y to a record low 2.13% amid analyst reminders the PBOC has the tools to intervene if it deems it necessary to prevent financial shocks. Lack of confidence in China laid bare by FDI inflows over H1 that showed a 29.1% slip y/y to CNY 498.9B. Japan's unemployment rate fell to 2.5%, lower than forecasts and May's total.

  • Rakuten (4755.JP) said its FinTech business requires a further comprehensive review with the reorganization to take effect in Jan-25. Standard Chartered (2888.HK) is to expand its share buyback program after Q2 profits beat foreacsts. Samsung Electronics (005930.KS) is said to be making progress in developing AI-capable memory chips, closing the gap with rival SK Hynix (000660.KS). BHP Group (BHP.AU) is to team up with Lundin Mining (LUN.CN) to buy South American copper miner Filo (FIL.CN) for a total of around C$4.1B. Investment group Capital may have been behind the A$1.9B bock trade in Fortescue Mining (FMG.AU) launched at a significant discount to yesterday's close.

• Digest:

  • No press leaks as BOJ meeting begins:

    • Nikkei page-two article repeated the main focus on whether BOJ will raise rates alongside publication of its JGB purchase reduction plan. Affirmed there will be board members voicing support for a rate hike this week, though countered by others concerned about the outlook for private consumption as a function of negative real wage growth. Elsewhere, BOJ said to be planning tweaks to the July Outlook Report. Drew attention to the restoration of electricity and gas subsidies from August through October, which stands to lower the FY24 inflation outlook, followed by a rebound in FY25. But developments looking unlikely to be a major swing factor, citing a BOJ source indicating thoughts that underlying developments remain on track to meet expectations. Any decision to raise rates will be accompanied by due caution towards household impacts. Most BOJ officials said to be encouraged by broadening wage hikes and temporary income tax breaks, though with some strong views they should hold off a while longer to monitor wage and spending data.

  • Japan jobless rate unexpectedly edges lower:

    • Unemployment rate was 2.5% in June, lower than consensus and previous month's 2.6%. Total unemployed fell a notable 60K m/m (largest sequential decline since September 2023). Total employment surged 250K, marking the biggest gain since December 2021, mostly driven by regular jobs. Outweighed a 190K rise in the labor force. Monthly volatility aside, pickup in labor force participation generally consistent with job offers to applicants ratio, which declined to 1.23 from 1.24 and also below consensus 1.24. Main factor was recent growth in job applications while offers have been little changed over the past two months. Attention on employment dynamics remain overshadowed by wages. Labor market is still widely viewed as tight as the BOJ Tankan survey continues to show acute labor shortages and cited as a key impetus for productivity enhancing capital investment. Next attention turns to the upcoming Monthly Labor Survey for June (scheduled for 6-Aug), expected to start reflecting this year's historic shunto wage hikes in regular earnings. Headline wages are apt to be skewed by outsized weighting from semi-annual bonuses, where ongoing corporate profit growth also points to some growth.

  • China M&A nearly halves in H1, contrasting with growth in global deals:

    • Nikkei analysis based on London Stock Exchange data found M&A involving Chinese companies fell 45% y/y by value 1H24, as the struggling economy and tighter espionage laws hamper cross-border deals. Semi-annual aggregates have been declining since 2022 and are down 80% from the peak of about $470B in 2H15. Latest deals featured Midea Group's (000333.CH) agreement to acquire the air conditioning equipment division of Arbonia (ARBN.SW). Also, CITIC Group announced its acquisition of 60% of the shares in China Huarong Asset Management -- now China CITIC Financial Asset Management (2799.HK). Article noted weakness was driven by cross-border deals -- Acquisitions of Chinese businesses by foreign companies shrank 56% to $8.5B, marking the lowest since 1H20. Subtotal was down 65% to $20B after including Chinese purchases of foreign firms. Article noted overseas funds are more selective with investments due to rising costs caused by monetary policy tightening in the US and elsewhere. Declines in China deals contrasted with 3% growth in global M&A value, marking the first rise in two and a half years. Deals in US involving Chinese companies account for only 8% of the total, down from 23% in 2H15.

  • China fund managers boost allocations to tech, high dividend stocks:

    • China equities capped negative finish to Q2 with CSI 300 declining 2% over the quarter. However, SCMP highlighted analysis that showed onshore fund managers boosted allocations to tech shares amid global AI frenzy and following President Xi's emphasis on new economy sectors and tech self-sufficiency. Funds raised allocation to electronic shares by almost 3% to 13.2%, making it their biggest exposure. Also increased ownership of telecoms, power generators and utilities. Decreased exposure to cyclical pockets such as food and beverages by 3.6% to 9.47% amid China's weak economy. Fund managers also favored high dividend stocks as CSI HK Dividend Index rose 16% over Q2, comfortably outperforming main benchmarks. Fund managers expected to continue favoring high dividend stocks amid China's economic uncertainty and record low bond yields. CSI 300's forecast dividend yield recently rose to 0.8% above 10Y sovereign bond yield - widest premium since 2006 (Bloomberg).

  • China official manufacturing PMI seen edging further into contraction:

    • Reuters consensus looks for the official manufacturing PMI due Wednesday to come in at 49.3 in July, following 49.5 in the previous month, which would mark the third straight month in contraction. Softening momentum at the start of Q3 follows notable disappointment in Q2 GDP growth. Solid export growth remains the main growth driver, though outlook clouded by the prospects for additional import tariffs among a growing number of China's trade partners. Article continued to reflect the underlying tone of disappointment over stimulus measures to date. Noted half of the CNY300B ($41.4B) in ultra-long treasury bonds in measures announced last week will be allocated to the consumer trade-in program, though the amount is seen too small as meaningful stimulus, equating to just 0.12% of GDP and 0.3% of 2023 retail sales. Still, recall that consensus GDP growth forecasts have edged up progressively amid surprising export strength and now match the government's target of around 5%. Also, yesterday's industrial profits report offered some positive signals in terms of easing cost pressures, recovering margins and improving pricing environment for steelmakers.

  • Notable Gainers:

    • +15.7% 1959.JP (Kyudenko): reports Q1 operating income ¥10.26B vs FactSet ¥4.50

    • +4.9% 2888.HK (Standard Chartered): reports Q2 underlying operating income $4.81B vs consensus $4.78B; announces $1.5B buyback

    • +4.3% 603259.CH (WuXi AppTec): reports H1 operating profit CNY5.07B vs StreetAccount CNY4.35B

    • +2.9% 6954.JP (FANUC Corp): reports Q1 revenue ¥195.10B vs StreetAccount ¥191.14B, operating income ¥32.96B vs StreetAccount ¥32.32B

    • +0.5% 1798.HK (China Datang Corp. Renewable Power): chairman Li Kai resigns due to work adjustment, effective immediately

  • Notable Decliners:

    • -6.1% 9719.JP (SCSK Corp): reports Q1 operating income ¥12.91B vs FactSet ¥13.94B

    • -3.5% 4507.JP (Shionogi & Co.): reports Q1 revenue ¥97.59B vs FactSet ¥97.69B, operating income ¥28.11B vs FactSet ¥32.29B

    • -2.3% 8697.JP (Japan Exchange): reports Q1 net income attributable ¥15.77B vs year-ago ¥17.74B

    • -1.6% 4755.JP (Rakuten Group): notes a further comprehensive review of its FinTech business is required; targets reorganization to take effect in Jan-2025

    • -1.3% 390.HK (China Railway Group): reports Q2 total value of new contracts CNY456.86B; StreetAccount notes year-ago figure was CNY606.37B

• Data:

  • Economic:

    • Japan

      • June unemployment rate 2.5% vs consensus 2.6% and 2.6% in prior month

        • Job offers to applicants ratio 1.23 vs consensus 1.24 vs 1.24 in prior month

    • Australia

      • June building approvals (6.5%) m/m vs consensus (2.3%) and revised +5.7% in May

  • Markets:

    • Nikkei: 57.32 or +0.15% to 38525.95

    • Hang Seng: (235.43) or (1.37%) to 17002.91

    • Shanghai Composite: (12.55) or (0.43%) to 2879.30

    • Shenzhen Composite: (2.68) or (0.17%) to 1559.51

    • ASX200: (36.40) or (0.46%) to 7953.20

    • KOSPI: (27.34) or (0.99%) to 2738.19

    • SENSEX: 191.97 or +0.24% to 81547.81

  • Currencies:

    • $-¥: +0.78 or +0.51% to 154.7760

    • $-KRW: +1.49 or +0.11% to 1383.5900

    • A$-$: +0.00 or +0.13% to 0.6553

    • $-INR: (0.02) or (0.02%) to 83.7313

    • $-CNY: (0.01) or (0.13%) to 7.2509