Oct 02 ,2024
Synopsis:
Asian equities ended mostly lower Wednesday, ex Hong Kong. The Hang Seng powered to a 7% gain over the morning, holding much of the gain over the day. But away from Hong Kong, markets were lower amid a general risk-off tone, with sharp falls in Japan and South Korea. Australia and most of Southeast Asia was also down. India and mainland China were closed for a holiday, Taiwan shut as a typhoon approached. US futures lower on latest Middle East developments, Europe opened with modest gains. US dollar consolidating overnight gains, little movement in Asia currencies. US Treasury yields mostly lower, JGB yields down, CGB yields off recent highs. Crude futures notably higher, precious metals down, base metals well supported.
Hong Kong stocks again substantially higher Wednesday after it reopened following a holiday Tuesday in an across-the-board rally. IT & internet, financials and properties outperformed with more significant gains for individual property developer stocks, albeit several from depressed bases. Despite equities surge, Bloomberg noted some jitters in the yuan options market this week while CGB yields also came off a little today.
Elsewhere, the mood was less bullish with a step higher in Iran-Israeli tensions overnight pushing the dollar and crude higher, the latter on talk Tel Aviv may target Iranian oil facilities. Nikkei volatility continued and the Kospi underperformed again just as factory activity PMI for September dipped into contraction with forward-looking sub-indicators also falling. But CPI fell to below 2% for the first time since early 2001, increasing the pressure on the BOK to cut rates next week.
Toyota Motor (7203.JP) said its North America unit has built an extra inventory of vehicles and parts ahead of the US port strikes, which began Tuesday. Private equity group KKR is considering a takeover bid for chip-equipment maker ASMPT (0522.HK), according to a Bloomberg report. Li Auto (2015.HK) reported an almost 50% increase in September deliveries, XPeng (9868.HK) saw a 39% increase, BYD (1211.HK) a 46% increase. Hyundai Motor (005380.KS) September sales fell 3.7% on weak overseas demand. Samsung Electronics (005930.KS) is to cut thousands of jobs in Southeast Asia and Australia related to its AI.
Digest:
China stimulus-induced rally continues in Hang Seng:
Hang Seng surged more than 6% on Wednesday, extending stimulus-induced rally as traders returned from China's National Day holiday on 1-Oct. Hang Sang China Enterprises Index climbed 7%, brining its winning streak to 13 days, longest run of gains since Jan-2018. Hang Sang Tech rose 8.5% while Hang Seng Mainland Properties Index jumped 14.8%. A Bloomberg gauge of Chinese real estate stocks has risen 92% over last five trading days with stocks of some developers including Shimao Group (813.HK) and Sunac China (1918.HK) more than doubling during same period. Mainland China bourses will remain closed until 8-Oct for Golden Week holiday. Bloomberg noted extended rally signals continued optimism about China's risk assets after Beijing released stimulus package last week, which one strategist said is a fundamental shift in investor positioning as hedge funds and mutual funds rush into underexposed Chinese stocks, which Goldman Sachs said hedge funds made record net purchases of Asian stocks in September, led by China and Hong Kong (Bloomberg). Came after Nasdaq Golden Dragon Index rose 5.48% overnight. Bloomberg added index has surged more than 36% since 13-September, erasing $3.7B YTD gains from short-selling and left shorts facing $3.9B in paper losses. Still some investors remain cautious that rally may be short-lived if Beijing fails to follow up on its current initiatives.
Offshore yuan options indicate some doubts about China's stimulus impact:
Forex market reacted to China's package of stimulus with volume of dollar-yuan trading surging last week in forex options (Bloomberg). Yuan option trading volumes jumped 42% above five-day average on 25-Sep in reaction to stimulus measures, while traders have been betting on appreciation of yuan over coming month, however outlook is far less certain in view of US election in November that a possible return of Trump could lead to resumption of trade wars between Washington and Beijing. Cited BofA FX strategist that there are broader structural interests for dollar calls beyond US election, indicating concerns about fundamentals driving dollar-yuan rate. Article added premium to USD/CNH puts over next month, compared with call options, has fallen by more than 80% since 26-Sep, as initial euphoria fizzles out. Article noted rising skepticism from foreign option traders isn't necessarily precursor of a coming selloff as China's financial markets are dominated by domestic accounts. It is indicating some doubts about how long China's stimulus impact will last while considering geopolitical risks.
Yen risks seen biased toward weaker side:
Nikkei discussed recent yen developments amid volatility triggered by the appointment of Ishiba as prime minister. Article warned of downward pressures if international investors unwind long positions. Echoed numerous reports that sharp yen appreciation on 30-Sep reflected the unwinding of so-called Takaichi trades based on her support for loose monetary policy. Ishiba's victory was said to have prompted a wave of yen short-covering given he had campaigned against a weak yen blamed for inflation, while expressing tolerance for BOJ policy normalization. Furthermore, Ishiba had also indicated a desire to increase taxes on financial income (though note that these views have since been corrected or toned down in Ishiba's inaugural press conference as the new PM). Momentum was amplified by Fed Chair Powell's comments signaling no rush to cut rates. Still, the story suggested yen appreciation appears to be ending. Cited CFTC data showing speculative investors held net long positions of 66K in yen as of Tuesday last week, the highest since Oct-16. Noted this is unusual given a US-Japan long yield spread of around 2.9 ppt. Mizuho Research & Technologies said a spread of 2.5-3.5 ppt is typically consistent with net shorts in the 50K-90K range. While refraining from calling market direction given elevated implied volatility, warned of the potential for long yen unwinds if the direction of US-Japan monetary policies becomes clearer. Furthermore, prior phases of net longs over the past decade presaged a selloff within a few months of the peak. Friday's US employment report was cited as the next potential catalyst.
Japan Prime Minister Ishiba to continue Kishida's economic policies:
In a press conference following the formation of the new cabinet, new Prime Minister Ishiba outlined economic policies that preserved those adopted by the Kishida administration (Nikkei). Pledged additional cost of living relief measures and cash handouts to low-income earners. Notably, voiced expectation that monetary policy will remain accommodative. Aims to see growth in real wages and productivity to form a virtuous cycle with capital investments to ease labor shortages. Ishiba has proposed to expedite a current policy goal to increase average minimum hourly wages to JPY1,500 ($10.46) in the current decade, from the original target of 2030s. Also endorsed acceleration of the flow from savings to investments through schemes such as NISA. Ishiba clarified he has no intention to raise taxes on financial income from individuals' defined contribution pensions or NISA. On energy policy, vowed utmost efforts to minimize nuclear utilization with the caveat that necessary plants would still need to be restarted. Article recalled the 4.8% selloff in the Nikkei index on 30-Sep was the biggest negative reaction to a newly elected LDP leader since 1990 after the market had been positioning for a Takaichi victory, encouraged by her support for the continuation of Abenomics policies. Cited Nomura Research Institute adding to analyst views that current market weakness would be temporary after negative reactions were likely overdone.
South Korea factory activity shrinks sharply, inflation at 3.5-year low to bring rate cut closer:
South Korea September PMI fell sharply as new orders, output contracted at accelerated pace. New export orders contracted for first time YTD, employment dipped, business optimism softened to 21-month low (S&PGlobal). Purchasing activity slowed, backlogs fell at steepest rate in five months. Firms said to be concerned over impact of stagnating domestic economy. Output prices fell for first time in 13 months - separate data Wednesday showed CPI at 3.5-year low 1.6% (Yonhap). Final PMI reading at contractive 48.3 from August's 51.9. Output slowdown matched export growth trajectory posted Tuesday, which showed m/m slowdown (Yonhap). CPI decline and PMI reading will increase pressure on BOK to cut base rate next week; employment dip will worry bank, which is juggling manufacturing slowdown against runaway house prices, high household debt. Already this month, SK On (SK Innovation, 096770.KS) announced scaled redundancies (Reuters), today Samsung Electronics (005930.KS) said it would cut thousands overseas jobs as its AI struggles continue (Bloomberg).
Notable Gainers:
+33.5% 3738.HK (Vobile Group): intends to conduct up-to-HK$200M buyback under repurchase mandate
+13.0% 2015.HK (Li Auto): reports September deliveries of 53,709 vehicles, +48.9% y/y
+5.8% 1211.HK (BYD Co.): reports September vehicle production volume 441,052 units vs year-ago 279,848 units
+4.3% 9868.HK (XPeng, Inc.): delivers 21,352 vehicles in September, +39% y/y
+3.6% 010130.KS (Korea Zinc Co.): provides value up plan; targets operating profit margin 8-9% for 2023-2024; Korea Zinc, Bain Capital to launch 3.2M shares buyback at KRW830,000/shar
+2.9% 522.HK (ASMPT): KKR reportedly looking at ASMPT
+2.9% Y92.SP (Thai Beverage Public): reportedly resurrects IPO plan for beer unit
Notable Decliners:
-6.8% 161390.KS (HANKOOK TIRE & TECHNOLOGY Co.): to acquire 122.8M shares of Hanon Systems for KRW1.228T in cash
-3.1% 9793.JP (Daiseki): reports H1 operating income ¥7.33B, (5%) vs year-ago ¥7.75B
-2.9% 6758.JP (Sony): reportedly purchases music selling rights from Pink Floyd for around $400M
Data:
Economic:
South Korea September
CPI +1.6% y/y vs consensus +1.9% and +2.0% in prior month
CPI ex-food & energy +2.0% y/y vs consensus +2.0% and +2.1% in prior month
Markets:
Nikkei: (843.21) or (2.18%) to 37808.76
Hang Seng: 1,310.05 or +6.20% to 22443.73
Shanghai Composite: Closed
Shenzhen Composite: Closed
ASX200: (10.70) or (0.13%) to 8198.20
KOSPI: (31.58) or (1.22%) to 2561.69
SENSEX: 0.00 or 0.00% to 84266.29
Currencies:
$-¥: +0.46 or +0.32% to 144.0280
$-KRW: (6.38) or (0.48%) to 1317.5800
A$-$: +0.00 or +0.07% to 0.6892
$-INR: +0.04 or +0.05% to 83.9720
$-CNY: +0.00 or +0.04% to 7.0339
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