Sep 25 ,2024
Synopsis:
Asian equities turned mostly negative Wednesday after a bright start. Greater China stocks added to yesterday's gains but main boards substantially off peaks by the close. Japan also opened higher only to close lower, same in Australia while there was a 2%+ negative turnaround in Seoul to follow a 1% gain at the open. Taiwan held onto gains as chip stocks rose sharply. Southeast Asia all lower by the close, India trading slightly lower. US futures negative, Europe opened with losses but off low points. US dollar DXY index lower and closing in on 100 but Asia currencies broadly weaker; yuan briefly fell through 7.0 per dollar. Treasury yields higher across tenors, JGBs mixed, CGB yields recovered lost ground. Crude contracts lower, precious metals mixed, industrial metals slipping from multi-month highs.
Asia equities struggled to build on Tuesday's rally, turning around a positive open to close either lower or substantially off their peaks. Investors taking stock of the PBOC monetary policy measures with many adopting a broadly positive stance but reiterating calls for fiscal support in the form of a consumption stimulus plan. Analysts also questioning the depth of Tuesday's rally just as JPMorgan noted short sales ratio on the Hang Seng had dipped to 13.6% Tuesday from 15-22% last week. Today, the PBOC reduced the MLF rate by 30 bps to 2.0% and net drained CNY291B ($41.4B) from the financial system, the largest such drain in three years and adding to the financial support package launched Tuesday.
Elsewhere, Japan services PPI inflation was unchanged from July's 2.7%. Australian monthly CPI showed headline inflation returned to 2-3% target band though was distorted by government energy subsidies. South Korea officials hinted at a dovish pivot two weeks before the BoK decides on rates just as consumer sentiment index slipped again.
Nomura (8604.JP) faces a 'tens of millions of yen' fine from Japan's market regulator over JGB trades, according to Yomiuri reports. Country Garden Services (6098.HK) is to sell its 1.49% stake in Zhuhai Wanda Commercial Management for nearly $450M. US Congress has removed Wuxi Biologics (2269.HK) from its Biosecure Act, freeing it from significant US sanctions. SEBI has greenlighted Hyundai Motor's (005380.KS) India unit IPO valued at nearly $20B. NH Investment & Securities (005940.KS) has been excluded from Korea's new 'value-up' index; shares sharply lower.
Digest:
Economists welcome PBOC easing, but say more fiscal support needed:
Economist takeaways following Tuesday's policy announcements were broadly positive, noting the surprise mostly came from the size of rate cuts rather than timing, though reaffirmed calls for more fiscal stimulus. JPMorgan noted this was the biggest monetary easing measure since 2015, surpassing Covid responses, though was still not a game changer. PBOC Governor Pan's latest guidance prompted some forecast revisions. HSBC added in another 10 bp easing in policy rates and a 50 bp RRR cut this year vs prior forecasts of 20 bp in policy rates and 50 bp in RRR. Goldman looks for another 25 bp RRR cut in Q4 while maintaining the 2025 projections for two 25 bp RRR cuts and two 10 bp policy rate cuts. However, all concurred that yesterday's measures were primarily counter-cyclical responses to weakening growth momentum and the main impetus needs to come from fiscal policy. Yet, analysis contained various suggestions for viable possibilities rather than hard forecasts, reflecting continued skepticism that Beijing will implement large-scale stimulus. Some stressed the need for explicit easing in fiscal austerity metrics alongside extensions of quotas for central government and local government special bonds. Reaffirmed longstanding calls to shift the focus of fiscal support towards private consumption rather than fixed investment.
Strategists see China stimulus measures as bullish for pockets of the market:
Strategists generally viewed China's stimulus announcements as positive for risk sentiment and providing impetus for continued stock market gains. MSCI China forward P/E below 10 even after Tuesday's rally (1.5 std below historical average) while positioning remains low. BofA saw upside risks to valuation multiples, backing large-cap and high beta stocks in internet and financial sectors. Views were mixed on outlook for consumer and property-related stocks with mortgage rate cut and relaxed down payment rules cited as catalysts but BofA arguing turnaround in real estate market and household incomes still some time off. JP Morgan anticipates foreign fund allocations will remain cautious with investors still awaiting large fiscal stimulus, evidence of macro stabilization and recurring inflows from national funds. UBS saw measures encouraging additional fund inflows, increased buybacks and value enhancement from better corporate governance. High dividend stocks seen as beneficiaries with brokers benefiting from improved ECM activity. HSBC also anticipates PBOC's swap facility and relending program stimulating buybacks and institutional participation in A-shares.
PBOC MLF operation affirms diminished status as policy tool:
PBOC lowered the 1-year MLF rate 30 bp to 2.00% in today's operation in line with yesterday's guidance from Governor Pan. Notably, operation size was CNY300B ($42.7B), well below the CNY591B in expired loans this month. Net drain of CNY291B was the largest since Dec-21 (Bloomberg) though was not seen as a hawkish signal. In the context of yesterday's suite of announced easing measures, press reports noted this only reinforced expectations for PBOC to funnel liquidity through other channels. Reuters cited PBOC-backed Financial News that pointed out the MLF auction result was published separately ahead of open market operations, distinguishing MLF from the 7-day reverse repo rate now serving as the main policy rate. This was said to allow MLF to resume its role as a mid to long term liquidity tool. The announced 50 bp RRR cut is anticipated to inject CNY1T in liquidity, and Reuters cited thoughts that large amount of MLF funds set to expire in Q4 reinforces prospects for more follow through. According to Bloomberg, the earliest window of opportunity for a repo rate cut is after the week-long National Day holiday starting 1-Oct and recalled PBOC already conducted a 14-day operation this week ahead of the break.
South Korea officials hint at dovish pivot:
Two senior South Korea officials at government and Bank of Korea indicatedpossible shift away from managing household debt and house prices, and back onto supporting domestic demand. Finance minister Choi Sang-mok said government's priority was focused on tackling slowdown in domestic demand over rising household debt. Said government would soon announce new measures to stabilize construction costs which would calm housing market by increasing supply (Reuters). Meanwhile, BOK board member Shin Sung Hwan said bank cannot afford to wait for clear slowdown in house prices as economic conditions in country are not good (Yonhap). Most economists expect BOK to cut rates on 11-Oct but some fear bank will wait until inflation dips further, and/or house prices show structured cooling signs. Shin called himself 'well known dove' but said unsure when rate cut could come, added he was unsure what to do in October or November.
Yuan strengthens to 16-month high on China's stimulus measures:
PBOC set yuan mid-point at 7.0202, 308 pips stronger than previous session while estimates were 7.0206. It was strongest fixing since mid-May 2023. Came after offshore yuan rallied past 7 per dollar to as high as 6.9951, extending rebound of 4% from YTD low touched in July (Bloomberg). Gain got boost from stimulus measures announced by PBOC and financial regulators on Tuesday, including policy rate and RRR cuts, lowering of outstanding mortgage rates and injecting liquidity into stock market. Yuan has already been stronger this quarter amid expectations that Fed will further loosen policy after delivering 50 bp rate cut that kept DXY at lowest level in more than a year. Added yuan could edge higher if dollar weakness drives Chinese exporters to repatriate large dollar holdings into local currency. SCMP citing Macquarie note reported Chinese exporters converted $37B in foreign exchange revenues in August, highest since Sep-2022 while China had a capital inflow of $7B same month, first inflow since Jul-2023. Noted Governor Pan reiterated China will prevent building of one-sided expectations in FX market and avoid overshooting risks in yuan's rate. Analysts' take is PBOC stands ready to cool off yuan appreciation bias.
Notable Gainers:
+14.6% 180640.KS (HANJIN KAL): included in Korea value-up index
+14.1% 4516.JP (Nippon Shinyaku): Capricor announces intent to file BLA for full approval of deramiocel for the treatment of Duchenne muscular dystrophy cardiomyopathy; Johnson & Johnson obtains approval in Japan for YUVANCI combination tablet
+4.7% 7649.JP (Sugi Holdings): reports H1 net income attributable ¥13.06B, +27% vs year-ago ¥10.27B
+2.3% 659.HK (NWS Holdings): Avolta agrees to acquire Free Duty from NWS Holdings for an undisclosed sum
+1.2% 3086.JP (J. FRONT RETAILING): guides H1 net income attributable ¥29.00B vs prior guidance ¥18.00B
+1.0% 7203.JP (Toyota Motor): upgrades buyback size to 530M shares from 410M shares
+0.8% 5401.JP (NIPPON STEEL): to sell 2.9M POSCO shares
Notable Decliners:
-13.1% 4151.JP (Kyowa Kirin): updates on HORIZON Phase 3 study of rocatinlimab (KHK4083) in atopic dermatitis
-6.1% 005940.KS (NH Investment & Securities Co.): excluded from Korea value-up index
-4.1% BANPU.TB (Banpu Public): Banpu Public, CapitaLand Investment and Just Climate reportedly short-listed to acquire Radiance Renewables
-1.4% 873.HK (Shimao Services Holdings): sells 60% stake in Wuxi Jinshatian Technology for CNY250M cash
Data:
Economic:
Japan August
Services PPI +2.7% y/y vs revised +2.7% in prior month
Australia August
CPI +2.7% y/y vs consensus +2.7% and +3.5% in July
Markets:
Nikkei: (70.33) or (0.19%) to 37870.26
Hang Seng: 128.54 or +0.68% to 19129.10
Shanghai Composite: 33.18 or +1.16% to 2896.31
Shenzhen Composite: 19.30 or +1.24% to 1575.28
ASX200: (15.60) or (0.19%) to 8126.40
KOSPI: (35.36) or (1.34%) to 2596.32
SENSEX: (86.04) or (0.10%) to 84828.00
Currencies:
$-¥: +0.79 or +0.55% to 144.0160
$-KRW: +3.20 or +0.24% to 1329.1600
A$-$: (0.00) or (0.14%) to 0.6884
$-INR: (0.00) or (0.00%) to 83.6135
$-CNY: (0.01) or (0.18%) to 7.0190
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