Oct 10 ,2024
Synopsis:
Asia equities ended largely higher Thursday. Region led higher by another strong day in Hong Kong however mainland benchmarks ended mixed as Shanghai rose and Shenzhen fell. Modest gains in Japan, Australia and South Korea. India slightly higher, Southeast Asia largely hugged the flatline. Taiwan closed for a holiday. US futures turning negative, Europe opened with small losses. US dollar largely unchanged from overnight gains, AUD and NZD recovering slightly, yuan stronger. Treasury yields a few points higher. Crude futures higher, precious and base metals up.
Asia equities again taking their lead from advances on Wall Street overnight. Risk-led boards notably higher at the bell although did come off their peaks by the close. Greater China markets saw another volatile day as investors continued to grapple with monetary easing policies, weak holiday spending data, and promises of a finance ministry briefing Saturday. Analysts continued to downplay potential size of fiscal stimulus ministry could announce, adding if it disappointed it could jeopardize current risk rally.
PBOC detailed CNY500B swap facility announced as part of September stimulus measures. Japan wholesale inflation unexpectedly rose in September while bank lending growth slowed. RBNZ's 50 bp rate cut produced dovish sell-side takeaways with economists anticipating follow-up 50 bp reduction in November. Malaysia's unemployment fell to lowest in four years in August, Philippines exports rose.
Seven & I (3382.JP) admitted it received a revised takeover proposal from Alimentation Couch-Tard; is to reduce stakes in several companies, create holding company for non-convenience stores with view to futures listing, all as takeover defense. Guotai Junan Securities (2611.HK, 601211.CH) and Haitong Securities (6837.HK, 600837.CH) announced details for their proposed merger that will create a state-backed brokerage with $226B in assets; both stocks very sharply higher in Hong Kong and reached daily limit 10% gain in Shanghai. Hyundai Motor (005380.KS) says it will use $3B from India unit IPO to invest in new car models, R&D. Adani Enterprises (512599.IN) is to raise $500M via a share sale it launched Wednesday as it seeks to shore up capital to fund expenses, pay down debt.
Digest:
PBOC launches CNY500B swap facility to boost markets:
PBOC to launch CNY500B ($70.62B) swap facility immediately to aid liquidity in stock market by taking applications from non-bank financial institutions. Scheme announced 24-Sep by bank's governor Pan Gongsheng as part of monetary easing package. China law stops PBOC from lending directly to non-bank financial institutions such as securities firms, funds, insurers; swap facility enhances ability to boost financing capacity without directly using state funds; companies can use bond, stock China ETF, CSI300 stock holdings as collateral for liquid assets such as treasury bonds, PBOC notes (Reuters). Bank could expand facility's size in future. Formal launch comes after surge in mainland China stock markets came to halt Wednesday following underwhelming NDRC briefing, analyst pushback on stimulus program effectiveness, weak holiday spending data (Bloomberg). Finance ministry to hold briefing Saturday to launch fiscal support program although doubts growing on whether it could surprise on upside (SCMP).
Analyst expectations of a blow-out China fiscal stimulus package recede:
China equity markets received support Wednesday from announcement finance ministry to outline fiscal spending plans Saturday. However, analysts noted ministry already declared focus will be on "intensifying cyclical adjustment" of fiscal policy, indicates it sees economic problems as cyclical and not focusing on structural reforms economy needs. Analyst cited by Bloomberg said ministry could announce only modest supplementary fiscal package to year end. Another cited by Reuters earlier this week said plan highly unlikely to be on scale of GFC-size CNY5-10T stimulus plan - not enough to current sustain risk rally. Warned markets could be disappointed by size of spending outline. Wednesday, SCMP cited economist saying scope of fiscal stimulus limited amid local government debt problems; hopes for tax relief, reduced fees combined with increased government spending "unrealistic" amid need for structural economic reform. Analysts quoted by Jiemian said fiscal package estimated around CNY2T.
Brokerages say China rotation likely to come from India rather than Japan:
Nikkei discussed analysts' views that global investors are unlikely to shift allocations from Japan to China. Noted the mainland China market frenzy fizzled this week after NDRC announcements disappointed markets, though still up about 15% since the start of the rally as hopes turned to the MOF briefing slated for Saturday. Nomura Securities suggested Japan outflow risk looks to be limited given offshore investors have only started increasing exposure after years of being underweight and pointed to more scope from India where inflows had more time to run. Furthermore, data showed foreign investors have been net sellers of India equities in every session so far this month for a total $5.35B and BNP Paribas said net selling was the largest on record last week as evidence of a reversal of the rotation out of China. UBS clients were mixed on China stimulus and long-term investors are waiting to assess additional fiscal measures. Goldman Sachs clients expressed interest in China plays through Japan stocks with high China exposure, mentioning US-China tensions are restricting direct access to China markets among some fund managers.
Survey shows a third of Japan firms expect to miss H1 guidance:
A Reuters poll (n=241) found 36% of Japanese companies expect to miss guidance for fiscal H1 through September while 18% look to beat and 45% tracking in line. Earnings reporting season expected to enter full swing toward the end of this month. Notably, 50% of transportation equipment sector firms estimated H1 earnings would fall short of forecasts, while 14% said they expected to exceed estimates. In contrast, 40% of transportation sector names anticipate earnings to come in above guidance, greater than 35% bracing for a miss. Looking ahead to H2, 58% said they would beat guidance, while 34% expect to miss. On FX, 70% projected a USD/JPY range of 140-150 by March-end, while 21% saw a range of 130-140. Survey period ran from 25-Sep to 4-Oct, covering the bout of volatility around 2-Oct after Prime Minister Ishiba expressed disapproval of a BOJ rate hike, sending yen to a six-week low 147.25. On cross-border M&A, 46% said US concerns about national security risks surrounding Nippon Steel's (5401.JP) bid for US Steel (X) had not affected their stance on US investments. Remaining 54% were not engaged in US investments with no decisions affected by the issue. As for measures to cope with a growing number of cross-border acquisitions targeting Japanese companies, 44% were striving to boost corporate value, while 21% were not taking any specific steps and 32% did not see themselves as M&A targets
Economists predict RBNZ will follow up with another 50 bp rate cut in November:
Takeaways from RBNZ's 50 bp rate cut leaned dovish with several predicting another 50 bp reduction in November. Common observations included RBNZ's downbeat assessment of domestic and global economic activity, rising excess capacity, and its comfort with inflation returning to target in Q3. Rate cut outlook beyond November mixed with Deutsche and Nomura among those anticipating further 50 bp cuts. Policy settings still considered restrictive in context of an OCR of 4.75% that remains well above RBNZ's neutral rate estimate of 2.75%. Economists also flagged risk of labor market deteriorating more than expected and inflation undershooting 2% target midpoint based on observations from recent QSBO. Handful anticipate less aggressive series of rate cuts with JP Morgan eyeing 25 bp rate cut in November and 25 bp cuts per quarter thereafter. UBS predicts 25 bp moves beyond November's 50 bp as risks to its view become better balanced. HSBC argued Q3 CPI and employment data could temper 50 bp rate cut expectations if they show domestic inflation stickiness, and elevated unit labor cost growth.
Notable Gainers:
+53.2% 2611.HK (Guotai Junan Securities): to merge with Haitong Securities in share exchange ratio of 0.62:1
+6.9% 4912.JP (Lion Corp.): Japan Activation Capital acquires Lion shares; signs partnership agreement to realize Lion's sustainable growth, enhance its corporate value
+3.6% 002714.CH (Muyuan Foods): guides Q3 net income attributable CNY9.0-10.0B vs year-ago CNY937M
+2.8% 9861.JP (Yoshinoya Holdings): reports H1 revenue ¥99.31B, +8% vs year-ago ¥91.65B
+1.7% 010130.KS (Korea Zinc Co.): MBK reportedly won't raise offer price further
Notable Decliners:
-8.1% 8267.JP (AEON Co.): reports H1 operating income ¥98.60B, (16%) vs year-ago ¥117.62B
-6.8% 6183.JP (BELLSYSTEM24 Holdings): reports H1 operating income ¥4.81B, (26%) vs year-ago ¥6.53B
-0.4% 3382.JP (Seven & i): confirms having received non-binding revised proposal from Alimentation Couche-Tard; reportedly to reduce its stakes in Loft, Akachan Honpo, and Seven & i Food Systems, and to create an intermediate holding company for its non-convenience store subsidiaries with possibility of listing shares of the combined entity
Data:
Economic:
Japan September
CGPI +2.8% y/y vs consensus +2.3% and revised +2.6% in prior month
Bank lending +2.7% y/y vs +3.0% in prior month
Markets:
Nikkei: 102.93 or +0.26% to 39380.89
Hang Seng: 614.74 or +2.98% to 21251.98
Shanghai Composite: 43.07 or +1.32% to 3301.93
Shenzhen Composite: (7.04) or (0.37%) to 1910.27
ASX200: 35.60 or +0.43% to 8223.00
KOSPI: 4.80 or +0.19% to 2599.16
SENSEX: 278.42 or +0.34% to 81745.52
Currencies:
$-¥: (0.20) or (0.14%) to 149.1100
$-KRW: +1.45 or +0.11% to 1348.9200
A$-$: +0.00 or +0.08% to 0.6725
$-INR: +0.01 or +0.02% to 83.9633
$-CNY: (0.01) or (0.13%) to 7.0726
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