Sep 04 ,2024
Synopsis:
Asian equities tumbled Wednesday. Heavy declines in tech names following Nvidia's overnight rout drove Taiwan, Japan and Korea sharply lower. Selling also picked up in Australia. Greater China markets saw milder losses still Shanghai Composite down to lowest level since early February. India retreating from all-time highs. US futures extending losses. Broad rally in bond markets with treasury yields falling across the curve. JGB and Aussie yields also dropped. Dollar lower against major peers while yen strengthened most against Aussie. Crude down to lowest since December amid weak demand and oversupply concerns. Copper and gold edging down. Bitcoin down to one-month low.
Asian equities in big risk-off session, tracking overnight Wall Street slide which saw Nvidia wipe out $278.9B in biggest loss of value ever for a US stock, while Nasdaq experienced worst session in a month and SOX suffered its biggest selloff since Mar-2020. AI/tech rout reverberated across Asia with big-name semis seeing worst day since 5-Aug meltdown. Weaker-than-expected US ISM manufacturing heightened concerns about growth outlook following recent traction behind soft landing narrative. Investors now shift attention to Friday's nonfarm payrolls to gauge pace and scale of Fed rate cuts.
In Asia macro developments, Australian GDP growth in-line with forecasts while prior quarter growth figures revised higher. Main focus was drag from consumption though RBA implications considered limited. China Caixin services PMI unexpectedly weakened amid softer new work inflows and input cost acceleration that contributed to reduced staffing levels. However, rise in export business a bright spot. Meanwhile slew of global banks trimmed China's growth forecasts amid waning confidence. Japan's service sector activity extended gains in August while India services sector growth rose to five-month high in August.
Asian chip stocks tumbled on renewed AI valuation jitters, including notable names TSMC (2454.TT), MediaTek (2454.TT), SK Hynix (000660.KS), Tokyo Electron (8035.JP) and Advantest (6857.JP). Bain Capital has made a counteroffer of JPY600B ($4.1B) to Fuji Soft (9749.JP) to outbid KKR. Sony (6758.JP) halts big-budget Concord game on 6-Sep, only two weeks after its launch on PlayStation 5 and PC. BYD (1211.HK) pauses on Mexico factory plans until at least after US election.
Digest:
Semiconductor sell-off extends to Asia:
AI/tech space back under scrutiny with Nasdaq experiencing worst session in a month with SOX seeing biggest selloff since Mar-2020. NVDA a notable drag after suffering record drop in market cap terms. Fallout extending to Asia with big-name semis in Japan, Taiwan Korea seeing their worst single day fall since 5-Aug meltdown. Nothing specific behind latest rout in sems with strategists pointing to lofty valuations and longstanding concerns about AI capex ramp and ROI. Regulatory scrutiny being dialed up with Bloomberg citing familiar with investigation who said NVDA and others issued DOJ subpoenas as it probes whether company violated antitrust laws. Group also struggling to regain momentum after Q3 guidance fell short of elevated expectations last week. More broadly, tech buffeted by renewed concerns about growth outlook driven by this week's soft China PMI data and US ISM manufacturing miss. Strategists have also pointed to deterioration in positioning and sentiment indicators following strong rebound post 5-Aug
China services activity grows at slower pace with declining employment:
Caixin services PMI was 51.6 in August, below forecasts of 52.2 and lower from 52.1 in July. Still it extended period of expansion into 20th month. Incoming new business and activity remained in growth, with export business rising at an accelerated rate. Meanwhile capacity pressures were observed with a renewed accumulation of backlogged work, but firms reduced staffing levels amid cost concerns. Average input prices notably rose at fastest rate in more than a year, but businesses refrained from raising selling prices even as business confidence improved. Caixin Composite PMI was unchanged from July's nine-month low at 51.2. Faster manufacturing output growth was offset by slower services activity expansion. New orders for manufacturing sector also outpaced those for services, though overall growth picked up pace from July. Composite indicator for employment slightly below 50, dragged by shrinking labor market in services sector. Caixin Insight Group economist highlighted persist issues such as insufficient domestic demand, uncertainties in global demand, and weak market optimism. Added there is still room for fiscal and monetary policy adjustments.
August PMIs renew market concerns about economic growth:
As they did a month ago markets once more contending with growth concerns following latest PMIs. China PMIs added to signs domestic demand slowdown extending further into Q3. Multiple sell-side economists made fresh downgrades to 2024 GDP growth forecasts over past week, citing ongoing drag from property downturn, consumption weakness and insufficient stimulus (FT). China's slowdown creating ripple effects with Asia manufacturing PMIs broadly showing weakness in new export orders amid softer China demand. Growth weakness posing risk to commodities demand, leading Goldman Sachs to lower its view on commodities and exit its copper position. Crude erased its 2024 gain amid concerns China crude imports, which fell to their lowest since Sep-2022 in July, will continue to wane. Factory activity remains depressed elsewhere with US and European manufacturing stuck in contraction. However, also thoughts hard(er) landing concerns overblown with Fed rate cuts looming. Soft landing still considered base case outcome among economists, and select data outside manufacturing proving more resilient (Citi economic surprise index has rebounded to -24 from 2024 low of -49).
Australian GDP growth in-line as consumers pull back on discretionary spending:
Australian Q2 GDP growth unchanged at in-line 0.2% q/q in Q2 after Q1's figure was revised up from 0.1%. Brought yearly growth rate down to 1.0% from upwardly revised 1.3%, slightly better than 0.9% forecast. Household consumption detracted 0.1% as growth in spending registered weakest pace since lockdown affected Q3-2021. Fall in services spending contributed to 1.1% fall in discretionary spending (reduced air travel and events spending), offsetting rise in goods spending (mid-year sales). Household savings ratio unchanged at 0.6%, though in annual terms was lowest since 2006/07 as spending outpaced disposable incomes. Government spending contributed 0.3% to growth, reflecting higher welfare payments, rise in spending on social programs, and increase in public sector employee expenses. Net trade contributed 0.2% with international students driving increase in services exports. Investment made no contribution while inventories cut 0.3%. Data not considered weak enough to budge RBA from its near-term holding pattern with consumption seen receiving a boost from tax cuts, government rebates and wage hikes that took effect from 1-Jul.
Apple ends LCD use in favor of OLED:
Nikkei reported Apple (AAPL) will use OLED displays in all iPhone models sold from next year, highlighting negative implications for Japanese LCD suppliers Japan Display (6740.JP) and Sharp (6753.JP). Apple is expected to further cut LCD purchases as iPads and other products began adopting advanced OLED screens. Article noted the two companies had a combined 70% share in iPhone displays about a decade ago and now only supplies LCDs for the iPhone SE model recently. South Korean and Chinese companies are the dominant makers of OLEDs. According to multiple sources, Apple has begun placing orders for OLED displays for the upcoming iPhone SE from BOE Technology Group (000725.CH) and LG Display (034220.KS), which hold OLED market share of about 20% and 30% respectively. During Apple's transition to OLEDs, JDI has recorded net losses for 10 straight years. It currently only supplies small OLEDs for devices such as the Apple Watch and now focusing on revamping its business strategy around LCDs for automotive applications. Sharp also scaling back its LCD business. Story cited Omdia projections for OLED panel shipments to overtake LCD for the first time this year.
Notable Gainers:
+78.5% 2459.HK (Sanergy Group): comments on unusual share price movement, notes significant forced sale from holder and confirms operations remains normal with no material change to its financial position
+7.4% 9749.JP (Fuji Soft): Bain Capital reportedly submits counterbid for Fuji Soft; offers to acquire company for ¥600B; Fuji Soft confirms it received non-binding privatization proposal from Bain Capital 26-Jul
+7.2% ORA.AU (Orora): to sell OPS to Veritiv Corporation for an enterprise value of A$1.78B
+2.6% 9843.JP (Nitori Holdings): reports August same-store sales +7.8% y/y
+0.5% 047050.KS (POSCO INTERNATIONAL): signs $40M investment contract with Black Rock Mining
Notable Decliners:
-8.5% 8046.TT (Nan Ya Printed Circuit Board): reports August revenue NT$3.10B, (8.2%) y/y
-6.8% 011790.KS (SKC Co.): reportedly preparing to sell remaining SK enpulse divisions
-3% 6758.JP (Sony): reportedly betting on push into producing more original content; needs to shift focus from distribution to creation of IP
-2% 1913.HK (Prada): Miu Miu CEO Benedetta Petruzzo reportedly to join Dior
Data:
Economic
China
August Caixin services PMI 51.6 vs consensus 52.2 and 52.1 in prior month
Caixin Composite PMI 51.2 vs 51.2 in prior month
Japan
August final services PMI 53.7 vs preliminary 54.0 and 53.7 in prior month
Composite PMI 52.9 vs preliminary 53.0 and 52.5 in prior month
Australia
Q2 GDP +0.2% q/q vs consensus +0.2% and +0.2% in Q1
GDP +1.0% y/y vs consensus +0.9% and +1.3% in Q1
India
August Final Services PMI 60.9 vs consensus 60.4 and 60.3 in prior month
Composite PMI 60.7 vs 60.7 in prior month
Markets:
Nikkei: (1,638.70) or (4.24%) to 37047.61
Hang Seng: (194.15) or (1.10%) to 17457.34
Shanghai Composite: (18.70) or (0.67%) to 2784.28
Shenzhen Composite: (9.09) or (0.59%) to 1521.64
ASX200: (152.70) or (1.88%) to 7950.50
KOSPI: (83.83) or (3.15%) to 2580.80
SENSEX: (267.32) or (0.32%) to 82288.12
Currencies:
$-¥: (0.45) or (0.31%) to 145.0300
$-KRW: +0.14 or +0.01% to 1341.1400
A$-$: (0.00) or (0.03%) to 0.6709
$-INR: +0.01 or +0.01% to 83.9658
$-CNY: (0.01) or (0.15%) to 7.1109
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