Sep 02 ,2024
Synopsis:
Asian equities mixed Monday. Greater China markets were main laggards with property developers listed both in Hong Kong and mainland China down sharply following disappointing August sales data. Other markets were largely quiet with Japan, Korea and Australia logging mild gains while Taiwan down slightly. India markets trading higher and on track for 13th straight day of gains. US futures pulling lower (markets closed for Labor Day on Monday). Bonds mixed with Treasury yields down 1 bp in light trade while JGB and Australian curves bear steepening. Yen depreciation was attributed to Friday's higher US Treasury yields albeit amid thin liquidity. Crude pushed lower amid OPEC+ production hike reports and China's economic woes. Gold, copper and iron ore backsliding. Bitcoin down to lowest since mid-August.
Early string of China macro data for August came mostly as a disappointment. While Caixin manufacturing PMI unexpectedly swung back to expansion, it failed to revive sentiment after NBS's official gauge of factory activity, released on Saturday, fell by more than expected to six-month low as new orders shrunk at a faster clip amid soft domestic demand. Meanwhile Nonmanufacturing PMI firmed amid summer-driven pickup in services activity. Private surveys showed China new home sales shrunk at a quicker pace and growth in new house prices slowed in August, and resale home prices were in decline for 28th straight month. Economists continue to harbor doubts about China achieving 2024 GDP of ~5%, reinforcing calls for policymakers to do more to support growth.
In other macro developments, Asian manufacturing PMIs showed mixed picture for regional factory activity in August with most countries experiencing weaker export orders amid softer demand from China. South Korean export growth in August fell from July's six-month high and came softer than expected as semiconductor shipments expanded at slowest pace in five months and auto exports contracted again. Still its exports expanded into 11th straight month. Japan capex growth rose by less than expected, seen as posing downside risk to GDP revision. Australian business inventories shrunk in-line with forecasts. RBA Deputy Governor Hauser said Friday rates to remain on hold for now amid sticky inflation.
New World Development (17.HK) shares fell 13% Monday as company said late on Friday it expects to post a loss of as much as HK$20B ($2.6B) for financial year ended in June, first annual loss in two decades. Artisan calls on Seven & I (3382.HK) to provide update on Couche-Tard's (ATD.CN) takeover bid by 19-Sep. Star Entertainment's (SGR.AU) shares suspended from quotation for not submitting it financial results by due date.
Digest:
China manufacturing PMI softens to six-month low:
Official manufacturing PMI was 49.1 in August, below consensus 49.5. Follows 49.4 in the previous month, marking the lowest since February. Production edged into contraction for the first time since February. New orders logged a stronger decline. Marginal ease in export contraction implies weakness driven by domestic demand. Inflation metrics notably weaker with input and output prices falling off relatively sharply. Other indexes showed ongoing downtrend in employment, input purchases, finished goods inventories and lengthening delivery times. Enterprises of all sizes saw softer activity levels with large firms remaining in marginal expansion, contrasting with declines in small and medium-sized firms. Stronger high-tech growth offered a silver lining, though consumer goods sectors were at neutral. Nonmanufacturing PMI remained comparatively firmer at 50.3 vs consensus 50.0 and 50.2 in prior month. NBS cited support from summer demand. Slightly better services activity outweighed further slowing in construction growth attributed to high temperatures and rainy weather. Real estate and capital market services remained weak. Composite PMI edged down to 50.1 from 50.2. In contrast, Caixin manufacturing PMI was 50.4, above consensus 50.0 following 49.8 in the prior month, as new orders returned to growth.
Slide in China home sales continues in August:
Data from CRIC showed value of new home sales from 100 biggest property developers dropped 26.8% y/y to CNY251B ($35.4B), faster than 19.7% decline in July. Transactions fell 10% m/m. Bloomberg noted deepening slide indicating waning impact of rescue package unveiled in mid-May. Recall at least ten cities have loosened or scrapped new-price guidance to allow market demand to play more decisive role, move seen to drive more developers to cut prices. Separate survey by China Index Academy showed average new home prices in 100 cities rose 0.11% m/m and 1.76% y/y, compared with rise of 0.13% m/m and 1.64% y/y in July; while resale home prices fell 0.71% m/m and were in decline for 28th straight month. Hang Seng Mainland Properties Index down nearly 5% Monday, erasing short-lived gains from last Friday when Bloomberg reported China mulling allowing homeowners to refinance as much as $5.4T of mortgages to lower borrowing costs to boost consumption. New Bloomberg analysis citing economists noted size seen too small to be a game-changer, given dire consumption landscape in China.
Japan Q2 MOF capex miss may pose downside risk to GDP revisions:
Headline MOF corporate survey capex rose 7.4% y/y in Q2, below consensus 10.0%, following 6.8% in the previous quarter. Acceleration was entirely driven by nonmanufacturers (real estate, electric utilities), partially offset by slower growth among manufacturers. Auto sector notably stalled, combined with negative swings in metal products and production equipment. By industry size, large firms logged higher growth, outweighed by slower mid-sized firms and sharper contraction among small firms. Ex-software capex picked up to 9.1% y/y in Q2 after 6.8% in Q1. Compares with first preliminary Q2 nominal GDP capex growth of 6.3% following 3.1% in Q1. Headline miss may point to downside risk for the next GDP revisions due 9-Sep. Yet, pipeline dynamics remain supportive with topline revenue growth strengthening to 3.5% from 2.3%, leading to current profit growth of 13.2% vs prior 15.1%. Current profit margins improved to 9.7% from 7.1%. Recall that analysts are still optimistic toward the earnings outlook while acknowledging corporate guidance remains conservative as expected upgrades were delayed amid recent market volatility, particularly in FX rates. Latest evidence showed buyback activity resumed since the August equity selloff and returning to a record pace.
Asian factory activity impacted by China slowdown, but demand holds up:
Asian manufacturing PMIs showed mixed picture for regional factory activity in August with most countries experiencing weaker export orders amid softer demand from China. However, this was offset by better domestic demand and lower input inflation pressures. South Korean PMI quickened with output rising at fastest in 40 months amid stronger new orders. However, new export growth fell to lowest in six months. Taiwan PMI growth weakened with main drag coming from slowdown in output growth as firms faced capacity constraints and new order growth eased. However, external demand healthy with new export sales highest in 2.5 years. Japan PMI contraction narrowed with output highest since May 2022. External conditions soft with new export volumes falling at quickest since March. Other China-dependent countries were similarly weak with Malaysia and Indonesia PMIs contracting. India PMI remained above long-term average, but slowed as growth in output and sales fell to lowest since January. However, fall driven by fierce competition between manufacturers with demand proving resilient.
South Korea export growth softer than expected:
Customs exports rose 11.4% y/y in August, missing consensus 13.0%. Follows 13.9% in the previous month, extending the expansion streak to 11 months. Semiconductor growth slowed to a five-month low, which the trade ministry attributed to new smartphone launches and AI investment (Yonhap). Autos fell for a third straight month due to temporary factors, such as wage negotiations and factory suspensions to improve production lines (Reuters). Shipments to China slowed (optimistic preview implied this was a notable downside surprise), while bright spots came in stronger US demand while EU exports rose sharply to a record-high after six months of declines. Trade ministry said exports on track for a record year. Bloomberg noted trading day adjusted exports grew 13.7%. Story was positive on semiconductor growth at 38.8% driven by AI-related demand in western markets, though noted some concerns about increasing dependence on US as South Korea curbs exposure to China. Imports rose 6.0%, slightly below consensus 6.3% and slowing from 10.5% in July.
Notable Gainers:
+7.8% 1193.HK (China Resources Gas Group): reports H1 revenue HK$52.08B, +8% vs year-ago HK$48.37B
+2.8% 3382.JP (Seven & i): Artisan says Seven & i board should update market on takeover bid by 19-Sep
+2.4% 6752.JP (Panasonic): guides interim dividend ¥20/share and year-end dividend ¥20/share
Notable Decliners:
-13% 17.HK (New World Development): guides FY net income attributable (HK$19.00-20.00B) vs year-ago HK$900.9M
-7.2% 600332.CH (Guangzhou Baiyunshan Pharmaceutical Holdings): former director Zhang Chunbo reportedly under investigation by authorities
-5.5% 9696.HK (Tianqi Lithium): reports H1 net income attributable (CNY5.21B) vs guidance (CNY5.53-4.88B)
-5% 000002.CH (China Vanke): reports H1 CAS net income attributable (CNY9.85B) vs guidance (CNY7.00-9.00B) and year-ago CNY9.87B
-5% 6965.JP (Hamamatsu Photonics KK): Toyota Motor to offer 7.3M shares of Hamamatsu Photonics KK
-0.7% 532343.IN (TVS Motor): reports August sales 391,588 units vs StreetAccount 348,875
Data:
Economic:
China
August official manufacturing PMI 49.1 vs consensus 49.5 and 49.4 in prior month (31-Aug)
Non-manufacturing PMI 50.3 vs consensus 50.0 and 50.2 in prior month
Composite PMI 50.1 vs 50.2 in prior month
August Caixin manufacturing PMI 50.4 vs consensus 50.0 and 49.8 in prior month
Japan
Q2 MOF corporate survey capex +7.4% y/y vs consensus +10.0% and +6.8% in prior quarter
Ex-software capex +9.1% y/y vs +6.8% in prior quarter
August final manufacturing PMI 49.8 vs preliminary 49.5 and 49.1 in prior month
Australia
Q2 business inventories (0.1%) vs consensus (0.1%) vs +1.3% in Q1
Q2 company profits (5.3%) vs consensus 0.0% and (2.5%) in Q1
August ANZ-Indeed job advertisements (2.1%) m/m vs revised (2.7%) July
July building approvals +10.4% m/m vs consensus +2.8% and revised (6.4%) in June
South Korea
August trade balance $3.83B vs consensus $4.67B and $3.62B in prior month
Exports +11.4% y/y vs consensus +13.0% and +13.9% in prior month
Imports +6.0% y/y vs consensus +6.3% and +10.5% in prior month
Markets:
Nikkei: 53.12 or +0.14% to 38700.87
Hang Seng: (297.10) or (1.65%) to 17691.97
Shanghai Composite: (31.18) or (1.10%) to 2811.04
Shenzhen Composite: (29.53) or (1.91%) to 1514.70
ASX200: 18.00 or +0.22% to 8109.90
KOSPI: 6.69 or +0.25% to 2681.00
SENSEX: 102.70 or +0.12% to 82468.47
Currencies:
$-¥: +0.44 or +0.30% to 146.6290
$-KRW: (1.70) or (0.13%) to 1335.8700
A$-$: +0.00 or +0.18% to 0.6778
$-INR: +0.03 or +0.04% to 83.9033
$-CNY: +0.01 or +0.18% to 7.1062
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