Sep 26 ,2024
Synopsis:
Asia equities ended higher almost everywhere Thursday. Gains highest in Hong Kong, which was led higher by substantial gains in consumer and internet-related stocks to lead the Hang Seng to close more than 4% higher; properties were also very strong with the Hang Seng Properties index up more than 16%. Mainland China boards also very strong. Tech-related benchmarks in South Korea and Taiwan higher. Japan's Nikkei and Topix also gained on tech stocks as well as yen weakness. India at fresh record highs, Southeast Asia boards a little more mixed. US futures point to a higher open, Europe opened sharply higher. US dollar consolidating overnight gains, yen stable, yuan strengthening with offshore challenging 7.0 per dollar again. US Treasuries mixed CGB yields dipped slightly. Crude contracts continuing overnight momentum lower on reports Libya is set to resume production. Precious meals steady, base metals higher again.
MSCI Asia-Pacific ex Japan index at its highest since April 2022. Hong Kong surged for a second day in three on hopes the monetary policy easing measures will aid recovery as well as a Politburo vow today to steady the housing market and increase fiscal support. Authorities also considering a one-off cash handout to poorer households while a $142B capital injection into tier 1 banks is also being mulled. Technology stocks supported by Micron's bullish update overnight as well as reports today SK Hynix will being mass production of its latest AI-related chip. Other semiconductor stocks in the region also strong including those in Japan, which also benefited from a weaker yen.
In macro developments, BOJ July minutes indicated board members were split on the pace of futures rate hikes. Singapore's volatile manufacturing sector saw output improve at the fastest rate in three years in August but Thailand's industrial output unexpectedly fell.
NTT (9432.JP) said it could raise up to $1B in a global data center REIT IPO in Singapore and could be complete by late 2025. US Steel said an arbitration board had ruled in favor of Nippon Steel's (5401.JP) $14.9B buyout deal. Platinum Asset Management (PTM.AU) said its board had rejected Regal Partners' (RPL.AU) $420M offer for the company. New World Development (17.HK) suspended trading in its shares amid reports its CEO Cheng was set to step down from post. SK Hynix (000660.KS) announced it had begun mass production of a new 12-layer HBM3E AI chip and will begin supply to customers within a year; stock significantly higher. Hanwha Ocean (042660.KS) has ended talks to buy Austral (ASB.AU) although did not specify reasons why.
Digest:
China Politburo affirms stronger policy support after stimulus announcements:
Xinhua summarized conclusions from the Politburo meeting that called for stronger countercyclical adjustment of fiscal and monetary policies. However, wide-ranging details largely touched on support measures already announced or reported by the press this week. Members reaffirmed endorsement of long-term special treasury bonds and LGSBs to enhance the driving role of government investment. Also supported lower deposit ratio and strong rate cuts. Added supportive rhetoric on the real estate sector to stem market declines, while proposing increased loans for whitelist projects and help the revitalization of idle land. Also called for adjustments to house purchase restrictions and lower rates on existing mortgages. Mentioned ongoing efforts to boost the capital market and vigorously encourage medium to long term fund inflows. Discussion of household sector included aims to promote growth in middle- and low-income groups. Also alluded to support for social welfare. Particular emphasis on securing employment for key groups such as new college graduates and migrant workers, while flagging extra support for the long-term unemployed. Vowed to strengthen aid for low-income groups.
China mulling injecting CNY1T of tier 1 capital into top state banks for first time since 2008:
Bloomberg citing people with knowledge reported China is mulling injecting up to CNY1T ($142B) of capital into its biggest state banks to raise their capacity to support sluggish economy. A follow-up from what top banking regulator Li Yunze mentioned during Tuesday's press conference. Funding will mainly come from issuance of new special sovereign funds with details subject to change. It will be first time since GFC that Beijing took such action. Move to replenish top six banks, despite all having capital levels far exceed requirements (core tier-1 capital at 11.77% by end-June, above 8.5% required for systemically important banks), came after Beijing unveiled broad reductions to outstanding mortgage rates and key policy rates to boost economy. Noted ICBC (1398.HK) and Bank of China (3988.HK), among others, are grappling with record low margins, dwindling profits and rising bad debt. Big banks under increasing pressure to boost economy by offering cheaper loans to risky borrowers while some lenders also heeded regulator's call to distribute first-ever interim dividends. Sector's NIMs have shrank to record low of 1.54% by end-June, well below 1.8% deemed necessary to maintain profitable operations.
China announces cash handouts for the poor, Shanghai to issue consumption discount vouchers:
Bloomberg, citing CCTV, reported China will distribute one-off cash handouts to people in extreme poverty before the National Day holidays starting 1-Oct, in a rare announcement of direct aid on the heels of Tuesday's suite of policy measures. There were no other details, including the size of the program. Still, article noted the step appears to be a departure from President Xi's caution against what he has termed "welfarism." Recalled the government has budgeted CNY154.7B ($22B) for financial assistance and subsidies to people in extreme poverty, orphans and homeless this year. According to the Ministry of Civil Affairs, there were 4.74M people living in extreme poverty as of June. Also, Xinhua reported CPCC and State Council unveiled guidelines Wednesday to promote the development of high-quality and sufficient employment and stressed the promotion of reasonable increases in employee compensation and expanding coverage of social insurance. In another announcement, Xinhua reported Shanghai will budget CNY500M ($71M) to issue consumption discount vouchers for dining, accommodation, cinema and sports activities. Measures to be deployed in two phases -- First round to be available from 28-Sep through late October with additional dining and cinema vouchers set for release during the National Day holiday. Second round will run November-December focusing on accommodation and sports vouchers to stimulate off-season spending.
July BOJ MPM minutes show board members stressed gradual approach to policy normalization:
Not much new in terms of forward-looking implications out of the July MPM minutes, when board members raised the policy rate to 0.25% while announcing the JGB purchase reduction plan. While the 7-2 vote count on the rate hike was disclosed, related discussions showed broad consensus on a gradual approach even among those supporting higher rates. Recall this has come into focus recently after relatively dovish takeaways from latest BOJ rhetoric somewhat dampened market expectations. A minority was cautious against a hike in July on the grounds they didn't have enough data to reconcile the many indicators showing soft patches in economic growth and private consumption, leading to the two dissenting votes. No remarks stood out as especially hawkish. One member noted an estimated 1% neutral rate warrants timely and gradual rate rises to prevent falling behind the curve, as outlined by Tamura in a recent speech. But others pushed back against a rationale based on neutral rate estimates, stressing their imprecision and proclivity towards mechanical policy conduct. Still, the case for normalization was also reinforced by deeply negative real rates, as one member noted real rates were the most negative for the past 25 years, and gradual hikes would still leave policy as accommodative. Also, many members were mindful of upside inflation risks with yen depreciation stimulating a renewed upturn in import prices. However, recall Governor Ueda noted such risks have since decreased amid the latest rebound in yen.
RBA notes Australian financial system has high level of resilience:
RBA Financial Stability Review noted Australian financial system has high level of resilience and is well positioned to supply credit to economy. Share of borrowers facing severe stress remains small while financial stability implications are limited given vast majority of borrowers expected to be able to continue servicing debts under range of plausible scenarios. Moreover, financial pressures expected to ease due to income tax cuts and disinflation progress. While deterioration in economic conditions could magnify stresses, most households have generally strong financial positions. Some segments of CRE market facing challenging conditions, but financial system risks remain contained. Global financial system uncertainties remain with Australia seen vulnerable from any disorderly adjustment in asset prices and imbalances in China's financial sector that impact it via increased risk aversion and through trade and investment channels in case of China.
Notable Gainers:
+35.4% 520.HK (Xiabuxiabu Catering Management (China) Holdings): Shanghai to give out CNY500M worth of consumption vouchers
+10.9% 4716.JP (Oracle Corp Japan): reports Q1 operating profit ¥22.19B vs FactSet ¥19.79B
+10.1% 5929.JP (Sanwa Holdings): holder ValueAct discloses 5.94% stake
+9.4% 000660.KS (SK Hynix): begins mass production of 12-layer HBM3E product with 36GB
+6.4% 138040.KS (MERITZ Financial Group): launches KRW500.00B buyback; to run for 12 months starting tomorrow
+4.9% 1658.HK (Postal Savings Bank of China): China reportedly considering injecting up to CNY1T of capital into top state banks
+3.4% 8604.JP (Nomura): reportedly among front-runners to acquire KKR's 63% stake in Avendus Capital
+2.2% 000880.KS (Hanwha): ends discussions regarding its bid to acquire Austal
+1.3% 010130.KS (Korea Zinc Co.): CTO Lee Je-joong opposes M&A attempt by MBK partners, Young Poong; Korea Corporate Investment Holdings, Young Poong increase offer price for Korea Zinc Co. to KRW750,000/share from KRW660,000/share
Notable Decliners:
-5.0% ASB.AU (Austal): Hanwha ends discussions regarding its bid to acquire Austal
-0.7% 2413.JP (M3): subsidiary CUC to acquire 100% stake in Noah Konzer; terms undisclosed
Data:
Economic:
Singapore August
Manufacturing production y/y +21.02% versus +2% in prior month
Markets:
Nikkei: 1,055.37 or +2.79% to 38925.63
Hang Seng: 795.48 or +4.16% to 19924.58
Shanghai Composite: 104.65 or +3.61% to 3000.95
Shenzhen Composite: 63.09 or +4.00% to 1638.36
ASX200: 77.30 or +0.95% to 8203.70
KOSPI: 75.25 or +2.90% to 2671.57
SENSEX: 300.60 or +0.35% to 85470.47
Currencies:
$-¥: +0.34 or +0.24% to 145.1000
$-KRW: (6.42) or (0.48%) to 1329.6900
A$-$: +0.00 or +0.53% to 0.6859
$-INR: +0.07 or +0.09% to 83.7039
$-CNY: (0.01) or (0.18%) to 7.0202
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