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StreetAccount Summary - Asian Market Recap: Nikkei (4.80%), Hang Seng +2.43%, Shanghai Composite +8.06% as of 04:10 ET

Sep 30 ,2024

• Synopsis:

  • Asia equities ended mixed Monday. Greater China markets added to last week's gains as Shenzhen led with a more than 10% advance. Hong Kong and Shanghai were also very strong again. Also among the gainers were Australia and Singapore. On the downside, Japan led the way lower on follow through from Friday's LDP election post the market close. Sharp declines in South Korea and Taiwan, India seeing a correction, Southeast Asia also mostly lower. US futures lower, Europe opened down. US flat, yen now flat having strengthened early on, yuan weaker but offshore still below 7.0 per dollar. Treasury yields higher across the board, JGB yields up, CGB yield bouncing back to near 2.25%. Oil contracts higher on Middle East escalation over the weekend, precious metals higher, industrial metals led higher by surge in iron ore on China housing news.

  • Asia equities polarized Monday. Greater China saw more positive momentum from last week's stimulus plans with the PBOC telling banks on Sunday to lower mortgage rates and reduce down payment requirements as it flagged last week. Economists generally supportive of measures in notes released to date while airing note of caution over whether the moves will prove enough to improve the economy. Mainland China markets closed from 1-7 Oct, Hong Kong closed Tuesday. Today, September China PMIs were mixed with official gauge showing manufacturing contracted at a decelerated pace though non-manufacturing unexpectedly fell. Caixin PMIs mixed with manufacturing back into contraction and services activity slowing by more than anticipated.

  • Japan equities down sharply to match futures movement Friday afternoon following election of Shigeru Ishiba in the LDP leadership race and thereby becoming Japan's next PM. While markets interpreted his victory over the Sanae Takaichi as hawkish, some early opinions hinted market reaction may be overdone. Today, Ishiba confirmed he would hold a snap election at the end of October.

  • Beijing is stepping up pressure on companies to abandon Nvidia chips and favor those from homegrown companies such as SMIC (981.HK) and Cambricon (688256.CH); both stocks substantially higher. Shenzhen and Guangzhou moved to lower down payment requirements on home purchases; Hopson Development (754.HK) substantially higher. NIO (9866.HK) is to receive CNY3.3B from strategic investors and make a CNY10B investment into NIO China. Powerchip Semiconductor Manufacturing (6770.TT) is to terminate its collaboration with SBI Holdings (8473.JP), citing 'difficulties in proceeding'. E-Mart (139480.KS) launched a tender offer for 2.1M shares in Shinsegae Engineering & Construction (034300.KS). Louis Dreyfus said it has raised its offer for Namoi (NAM.AU) with major shareholder STAM accepting the offer.

• Digest:

  • More China follow-through on real estate support measures, lower rates:

    • Xinhua reported PBOC and NFRA announced a series of policies Sunday to stabilize the real estate market following the Politburo meeting. Stipulated mortgage rates (on existing loans) for first and second home buyers are required to be reduced by no more than 30 bp below the LPR by 31-Oct (recall Governor Pan earlier signaled average rates for existing mortgages would fall by 50 bp). Minimum down payment ratio for individuals' commercial housing mortgages to be lowered by up to 15%, consistent with Pan's guidance. PBOC also released detailed guidelines enhancing the mortgage framework. New borrowers now have the option to take fixed or floating rate loans. Fixed rate borrowers can negotiate a switch to floating rates, while floating rates will be repriced at intervals based on the latest loan market quotation rate. When floating rates on existing loans deviate from new loan rates by a certain margin, borrowers can refinance. State Council meeting was also held Sunday to ratify policy proposals (Xinhua). Premier Li reaffirmed efforts must be made to achieve economic and social development goals for this year. On rates, PBOC conducted a CNY182B ($26B) seven-day reverse repo operation Sunday at a 1.5% rate (Xinhua), consistent with Friday's announced 20 bp cut. Also lowered the SLF rates by 20 bp (Xinhua).

  • China official PMI mixed while Caixin PMI misses expectations:

    • Official manufacturing PMI was 49.8 in September, better than consensus 49.5. Follows 49.1 in the previous month while factory activity contracted for fifth consecutive month. Gauge in contraction during all but three months since Apr-2023 (Bloomberg). NBS statistician said overall level of manufacturing market prices continued to fall due to lack of effective demand while decline narrowed. Meanwhile more exporter-oriented Caixin manufacturing PMI fell to 49.3 in September from 50.4 in prior month, missing forecasts of 50.5, marking lowest reading since July-2023. Downbeat data backs case for strong stimulus announced by Chinese authorities to tackle economic challenges amid sense of urgency that country might miss this year's growth target. Official non-manufacturing PMI fell to 50 in September, versus 50.4 expected and prior month's 50.3, leaving General PMI to 50.4 from 50.1. Caixin services PMI, a relatively bright spot, slowed to 50.3 from 51.6 last month and came below 51.5 expected. It was also the slowest in a year. Caixin Composite PMI came at 50.3 from 51.2 in August.

  • China economists add to stimulus projections, but growth implications not yet clear:

    • Economist takeaways from the Politburo meeting broadly affirmed a policy shift toward more accommodation. Morgan Stanley noted the unprecedented meeting held in September was indicative of an increased sense of urgency about addressing deflation risk, yet magnitude has not reached the stage whereby policymakers are prepared to do whatever it takes. Still sees fiscal policy tone as vague, though expects a modest supplementary budget by late October. That said, latest guidance and press reports helped to clarify ballpark expectations for fiscal stimulus and economists flagged prospects for an additional CNY1-2T ($143B-285B) in ultra-long special treasury bond issuance, which could be facilitated through a quota increase or lifting the official deficit target (Goldman, JPMorgan). Rate projections saw added easing in both policy rates and RRR. HSBC looks for 10 bp easing in policy rates this year and 20 bp in 1H25 along with another 50 bp RRR cut this year and 50 bp next year. Goldman expects 25 bp RRR easing in Q4, followed by two 25 bp cuts and two 20 bp policy rate cuts next year. JPMorgan forecasts 25-50 bp RRR easing by year-end and maintained their call for 10 bp policy rate cut in 1Q25. Notably, there was not much discussion of GDP growth forecasts beyond some affirmation of a positive outlook for sequential growth in H2. JPMorgan currently looks for 2024 growth of 4.6% (short of the government target of about 5%). Goldman noted limited upside risk to their forecast of 4.7% for now.

  • Japan's Ishiba declares snap election for 27-Oct as markets recalibrate policy outlook:

    • Nikkei cited incoming prime minister Ishiba's press conference Monday confirming a dissolution of the lower house, possibly on 9-Oct, setting up a general election on 27-Oct. Market price action in focus Monday as Ishiba's victory in the LDP race was confirmed after Friday's close. Nikkei closed 4.80% lower, USD/JPY breached the 141 range from Friday's high of 146.49, JGB yield curve bear-flattened. Ishiba emphasized at a Friday press conference that he will make the economy his top priority, though Nikkei noted an immediate question over the fate of energy subsidies currently scheduled to expire in October. Ishiba is believed to be more concerned about fiscal discipline than Takaichi. Article recalled earlier comments indicating he seeks to minimize the tax burden to fund the defense budget expansion while also expressing a willingness to raise corporate taxes. Furthermore, Ishiba has said he wants to strengthen taxation of personal financial income to address the drop-off in effective tax rates on annual incomes above JPY100M ($700K), which critics warned could dampen household investment. On broader economic policy, Ishiba pledged a full exit from deflation within his initial three-year term, emphasizing distribution of wealth to workers and calling for an increase in hourly minimum wages to JPY1,500 ($10.56) within this decade.

  • Japan analysts don't see Ishiba as particularly hawkish on fiscal/BOJ policy:

    • Common thread among analyst takeaways from the LDP presidential election implied market knee-jerk reactions reflecting Ishiba's hawkish image on fiscal and monetary policy were overdone. JPMorgan equity strategists noted Ishiba was supported by outgoing Prime Minister Kishida in the runoff vote and announced his intention to maintain Kishida's policies. Also does not see yen strengthening to a level that threatens corporate profitability. Morgan Stanley MUFG strategists highlighted press conference remarks indicating Ishiba would not jeopardize his primary goal of economic growth and his pledge to end deflation during his initial three-year term. Earlier comments about tax hikes were similarly toned down. Goldman Sachs economists argued Ishiba faces a high bar to deviate significantly from existing policies, especially with elections looming. Furthermore, Ishiba affirmed the need to formulate an economic package in the autumn where path of least resistance points to contents continuing with energy subsidies and natural disaster assistance. Goldman economic forecasts unchanged pending details. Amid elevated debate over Ishiba's stance on monetary policy, analysts noted Ishiba's hawkish image was amplified in light of preceding market positioning for a Takaichi victory, though Ishiba has not strongly supported rate hikes.

  • Notable Gainers:

    • +54.2% 9966.HK (Alphamab Oncology): announces collaboration with CSPC in relation to the development and comercialization of JSKN003 in mainland China

    • +40.4% 754.HK (Hopson Development Holdings): Shanghai, Shenzhen and Guangzhou move to relax rules on home purchases

    • +16.8% 9866.HK (NIO Inc): strategic investors to invest CNY3.3B in cash, NIO to invest CNY10B in cash in NIO China

    • +13.1% 034300.KS (Shinsegae Engineering & Construction Co.): E-Mart to launch tender offer for 2.1M Shinsegae Engineering & Construction Co. shares at KRW18,300/share

    • +12.5% 1336.HK (New China Life Insurance): president Zhang Hong reportedly retires

    • +2.2% 1475.HK (Nissin Foods): acquires ABC Pastry in Australia for A$33.7M (HK$178.6M)

  • Notable Decliners:

    • -7.7% 7270.JP (Subaru): reports August global production (4.0%) y/y to 69,340

    • -7.6% 7203.JP (Toyota Motor): reportedly plans to reduce Oct-Dec global production to 2.5M units, (4.7%) y/y

    • -7.4% 001570.KS (KUM YANG): to launch 11.6M-share placement at KRW38,950/share

    • -7.0% 7267.JP (Honda Motor): reports August global vehicle production (11.3%) y/y to 307,870 units

    • -0.6% 8473.JP (SBI Holdings): Powerchip Semiconductor Manufacturing terminates Japan semiconductor project with SBI Holdings

    • -0.6% 035420.KS (NAVER): to launch KRW401.19B buyback

• Data:

  • Economic:

    • China September

      • Official manufacturing PMI 49.8 vs consensus 49.5 and 49.1 in prior month

        • Non-manufacturing PMI 50 vs consensus 50.4 and 50.3 in prior month

        • Composite PMI 50.4 vs 50.1 in prior month

      • Caixin manufacturing PMI 49.3 vs consensus 50.5 and 50.4 in prior month

        • Caixin services PMI 50.3 vs consensus 51.5 and 51.6 in prior month

        • Caixin Composite PMI 50.3 vs 51.2 in prior month

    • Japan August

      • Industrial production (3.3%) m/m vs consensus (0.5%) and +3.1% in prior month

        • METI survey projections +2.0% in September, +6.1 in October

      • Retail sales +0.8% m/m vs +0.2% in prior month (08:50 JST)

        • Retail sales +2.8% y/y vs consensus +2.3% and revised +2.7% in prior month

    • South Korea August

      • Industrial production +4.1% m/m vs consensus +2.8% and revised (3.9%) in prior month

        • Industrial production +3.8% y/y vs consensus +1.9% and revised +5.2% in prior month

    • Australia August

      • Private sector credit +0.5% m/m vs consensus +0.5% and +0.5% in July

    • New Zealand September

      • ANZ Business Confidence +60.9 vs +50.6 in August

  • Markets:

    • Nikkei: (1,910.01) or (4.80%) to 37919.55

    • Hang Seng: 501.38 or +2.43% to 21133.68

    • Shanghai Composite: 248.97 or +8.06% to 3336.50

    • Shenzhen Composite: 189.91 or +10.93% to 1927.48

    • ASX200: 57.60 or +0.70% to 8269.80

    • KOSPI: (56.51) or (2.13%) to 2593.27

    • SENSEX: (1,105.41) or (1.29%) to 84466.44

  • Currencies:

    • $-¥: +0.33 or +0.23% to 142.4410

    • $-KRW: +0.03 or +0.00% to 1310.3300

    • A$-$: +0.00 or +0.37% to 0.6928

    • $-INR: +0.08 or +0.10% to 83.7971

    • $-CNY: (0.00) or (0.00%) to 7.0116