Oct 18 ,2024
Synopsis:
Asian equities ended mostly higher Friday. Greater China markets comfortably the strongest after two market-supporting measures were detailed by the PBOC; Shenzhen led, the Hang Seng closed near its high. Taiwan's Taiex pulled higher by TSMC and Hon Hai gains, South Korea regional underperformer. India higher, Southeast Asia was mostly stronger, Australia lower but well off its trough. US futures turning higher, Europe rallying within the opening hour. US dollar lower, small strengthening in yen, yuan and AUD, rupee slipping to record low as foreign fund flow exodus continues. Treasury yields mixed. Crude off recent lows, gold touched record high. Base metals mixed.
A strong day in China-based markets with the Hang Seng and Shanghai Composite both up more than 3%, and Shenzhen up nearly 5%. There were multiple drivers behind the rally: the PBOC detailed two funding schemes it announced earlier in the month, and said it would cut banks' RRR by another 25-50 bps before the year end. Second, Q3 economic growth and September activity data was not as bad as some had expected, although it still placed Beijing's FY growth target of 'around 5% in significant doubt. Third, President Xi said technology should play a central role in the modernizing of the China economy, which gave internet & IT stocks a substantial boost.
However, the deep structural problems in the economy were again highlighted by below-the-surface details in the monthly activity data including a sharp decline in real estate investment and an accelerated contraction in home prices. Nevertheless, China markets capped an otherwise poor week for equities with solid gains, led by tech. Elsewhere, Japan core inflation eased to lowest since Apr-24 leading to JGBs to re-approach the 1% level once again. Malaysia exports unexpectedly fell just as its government was set to deliver its budget.
Chubu Electric (9502.JP) says it plans to further invest in overseas decarbonization assets including small modular reactors and carbon capture to fuel growth. Hyundai Motor's (005380.KS) India IPO received $5.5B in offers and was 2.4x oversubscribed despite subdued retail interest. The US commerce department is reported to be probing whether TSMC (2330.TT) has made AI and smartphone chips for Huawei.
Digest:
PBOC Governor Pan signals 25 to 50 bp RRR cut by year-end:
In his speech at Financial Street Forum, PBOC Governor Pan Gongsheng flagged another 25 to 50 bp RRR cut for commercial banks by another 25 to 50 bp by year-end depending on liquidity conditions. Pan recapped recent RRR cut of 50 bp, 7D reverse repo cut of 20 bp and MLF rate cut of 30 bp in September. Said he expected LPRs to be lowered by 20 to 25 bp on 21-Oct after major lenders announced reductions in their deposit rates on Friday. Pan also elaborated two new policy tools introduced to support markets at press conference on 24-Sep. Reuters reported Pan said two measures, swap facility and re-lending facility, were based on market principles. Adding PBOC does not directly fund the swap facility. Bloomberg added PBOC also kicked off specialized re-lending facility for listed companies and major shareholders to buy back shares with program offering CNY300B ($42.1B) in funding at 1.75% to 21 eligible commercial banks that lend to qualified companies and shareholders. Banks will decide whether to issue loans and bear risks on their own. Pan added this facility has specific directional aims and warned against any loan funds entering stock market "unlawfully".
China GDP and activity data better than expected:
GDP expanded 4.6% y/y in Q3, slightly above consensus 4.5%, following 4.7% in the previous quarter. However, sequential growth slightly softer than expected at 0.9% q/q vs consensus 1.1% and 0.7% in Q2. Cumulative Jan-Sep growth was 4.8% y/y vs consensus 4.9%. September activity data also broadly beat. Industrial production rose 5.4% y/y vs consensus 4.6% and 4.5% in prior month. No major standouts in the details -- passenger cars were weak (despite surge in NEVs), PCs and smartphones maintained moderate growth, steel products remained broadly lower. Capacity utilization was 75.1%, below 75.6% a year earlier. Sector profile was mixed, featuring declines in autos, ferrous metal processing and electrical machinery. Computer, communication and other electronics logged a notable increase. Retail sales rose 3.2% also above consensus 2.5% and 2.1% in August. Standout was 20.5% growth in household appliances, reflecting support from the government trade-in program. Autos marginally higher, though better than YTD aggregate pace. Fixed asset investment growth remained steady at 3.4% YTD, marginally better than consensus 3.3%. Real estate component was down 10.1% following 10.2% drop in Jan-Aug. Declines in housing sales continued gradual narrowing, while new construction starts remained in deep contraction. Urban unemployment rate was 5.1% vs consensus and prior month's 5.3%.
China new home prices fall at steepest pace in more than nine years:
New home prices in China were down 5.8% y/y in September, deeper than 5.3% slide in August, based on Reuters calculations of NBS data. It was the steepest pace since May-2015. Prices fell 0.7% m/m, matching the dip in August and were down for 15th consecutive month. 66 out of 70 cities surveyed reported m/m price drop in new home prices, compared with 67 in August. All 70 cities reported m/m drops in second-hand home prices in September with Bloomberg noted value of these homes fell 0.93% m/m, following 0.95% decline in August. Slump highlights China's struggle to arrest property market slump while deflationary pressure adds to economic pains. Recall China has introduced various measures recently, including lowering mortgage rates and lifting homebuying restrictions in various cities. Housing minister Ni Hong said on Thursday that country will double credit quota for unfinished home projects to CNY4T ($562B) by year-end and plan to renovate 1M apartments in urban shantytowns.
Japan core inflation eases as expected on restart of energy subsidies:
Core CPI rose 2.4% y/y, compared to consensus 2.3%. Follows 2.8% in the prior month and marks the softest reading since April. Moderation entirely driven by 0.46 ppt reduction in energy contribution reflecting the reinstatement of electricity and gas subsidies. Elsewhere, slight pickup in heavily weighted non-fresh food was the main offsetting factor. Non-fresh food & energy inflation edged up to 2.1% vs consensus and previous month's 2.0%. Results were consistent with earlier Tokyo data. Goods inflation slowed to 3.5% from 4.5%, albeit includes utilities. Translated to notably softer non-durables component, while durables and semi-durables were little changed. Services inflation edged down to 1.3% from 1.4%. Attention has shifted more towards forward-looking factors after BOJ repeatedly signaled a continuation of policy normalization as long as economic developments tracked in line with forecasts. Recent BOJ rhetoric emphasized monitoring of wage hike passthroughs and noted some constructive developments. Next major checkpoint remains the 2025 shunto talks. Umbrella union Rengo reportedly set to continue lobbying for wage hikes of at least 5% including base pay raises of at least 3%.
China housing ministry announcements still leave questions unanswered:
Real estate analysts described the content from China's housing ministry briefing as additional steps in the right direction, though raised questions about the effective scale of measures. Also reinforced the key question surrounding the broader suite of pledged stimulus measures of the total size and method of fiscal funding. Morgan Stanley noted lack of clarity on funding for housing inventory and idle land buybacks. Estimated CNY2-3T is required for relocation from urban village redevelopment, which looks stretched given the current special bond quota and this channel alone may limit incentive for local governments. Also pointed out the majority of the CNY2.2T committed to the property whitelist program to date will only replace existing debt, suggesting impact on project completions may remain marginal if this continues. Goldman Sachs suggested the measures could lead to some improvement in the near-term supply-demand dynamic in the property market but still don't address the large backlog of projects under construction. JPMorgan saw the expanded shantytown redevelopment scheme as the main positive feature. However, noted scale is much smaller than the prior rounds over 2014-2018.
Notable Gainers:
+13.1% 6030.HK (CITIC Securities): Chinese financial sector trading higher after PBoC reveals policy on special reloan to support buybacks, increased holdings
+7.9% 4443.JP (Sansan): Nomura upgrades to buy from neutral citing company's potential for longer-term profit growth
+7.7% 6146.JP (DISCO Corp.): Q2 operating profit beats FactSet estimates while revenue falls slightly short; analysts highlight better-than-expected GM improvement but some note Q2 shipment miss vs guidance due partly to delays of power semiconductor and SiC applications
+7.3% 3606.HK (Fuyao Glass Industry Group): reports 9M results with year-on-year revenue and operating profit growth; analysts generally highlight strong gross margin supported by favorable product mix and falling prices of raw material
+7.1% 6849.JP (Nihon Kohden): raises H1 operating profit guidance citing better-than-expected domestic AED sales and gross margin
+4.8% 2330.TT (Taiwan Semiconductor): reports Q3 results and Q4 outlook exceeding FactSet estimates; beats earnings expectations and raises FY guidance on strong AI and leading edge demand; shares rise despite reports of US investigating company's dealings with Huawei
+3.4% 4578.JP (Otsuka Holdings): reportedly may sell its minority stake in MicroPort; company reportedly consulting an adviser after receiving preliminary interest from potential buyers
Notable Decliners:
-8.6% 3008.TT (LARGAN Precision): reports Q3 results ahead of FactSet estimates; analysts widely highlight conservative and underwhelming Q4 outlook amid subdued smartphone demand
-7.2% 3498.JP (Kasumigaseki Capital): to issue ¥22.0B zero coupon EUR-JPY convertible bonds due Nov 2029 with conversion price set at ¥17,710
-1.1% 3048.JP (Bic Camera): announces FY25-29 medium-term management plan; unveils strategic focus areas
-0.7% 8058.JP (Mitsubishi): to invest a minimum of PHP18.4B (¥47.87B) for 50% of ACV, which currently holds a 13% stake in Globe Fintech Innovations, the parent company of GCash
Data:
Economic:
China
Q3 GDP +4.6% y/y vs consensus +4.5% and +4.7% in prior quarter
Q3 GDP +0.9% q/q vs consensus +1.1% and +0.7% in prior quarter
September Industrial production +5.4% y/y vs consensus +4.6% and +4.5% in prior month
Retail sales +3.2% y/y vs consensus +2.5% and +2.1% in prior month
Fixed asset investment (YTD) +3.4% y/y vs consensus +3.3% and +3.4% in prior month
Unemployment rate 5.1% vs consensus 5.3% and 5.3% in prior month
Japan
September nationwide core CPI +2.4% y/y vs consensus +2.3% and +2.8% in prior month
CPI excl. fresh food & energy +2.1% y/y vs consensus +2.0% and +2.0% in prior month
Overall CPI +2.5% y/y vs consensus +2.5% and +3.0% in prior month
Markets:
Nikkei: 70.56 or +0.18% to 38981.75
Hang Seng: 725.01 or +3.61% to 20804.11
Shanghai Composite: 92.18 or +2.91% to 3261.56
Shenzhen Composite: 74.98 or +4.09% to 1906.86
ASX200: (72.70) or (0.87%) to 8283.20
KOSPI: (15.48) or (0.59%) to 2593.82
SENSEX: 285.72 or +0.35% to 81292.33
Currencies:
$-¥: (0.10) or (0.07%) to 150.1110
$-KRW: (1.54) or (0.11%) to 1369.7100
A$-$: +0.00 or +0.22% to 0.6712
$-INR: +0.01 or +0.01% to 84.0716
$-CNY: (0.02) or (0.23%) to 7.1076
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