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StreetAccount Summary - Asian Market Recap: Nikkei (0.07%), Hang Seng (1.57%), Shanghai Composite +0.20% as of 04:10 ET

Oct 21 ,2024

  • Synopsis:

    • Asia equities closed mixed Monday. Greater China markets mixed as mainland exchanges gained ground but Hong Kong was sharply lower. Japan broke to the downside late on despite a bright start. More losses in India, several SEA benchmarks lower. Australia saw a positive day, South Korea and Taiwan also higher. US futures mixed, Europe opened a few points higher. US dollar stronger, yen strength pared to trade weaker. Treasury yields higher, JGB yields lower. Crude and base metals higher, gold at another record high.

    • Asia markets without a firm direction in a quiet day's trade. Greater China equites still pulled around in the wake of monetary and fiscal stimulus program launches as analysts debate potential impact. Several below consensus brokers late last week upgraded FY GDP growth targets but also highlighted it is too early to tell whether they will tackle the economy's long-term structural problems. Today, banks cut their 1Y and 5Y loan prime rates (LPR) by 25 bp but the news had little impact on the market as they had been flagged by the PBOC on Friday.

    • South Korean export growth slowed notably in first 20 days of October, though growth in chip shipments strengthened. RBA Deputy Governor Hauser reiterated policy can change in either direction with Australian inflation still too high. Malaysia's budget on Friday sought to trim subsidies for the rich while Q3 GDP data released today showed growth slowed from Q2.

    • Sony Group (6758.JP) and Honda (7267.JP) said they will use AI to enhance self-drive capabilities in EVs currently under development. Nikon Corp (7731.JP) said it will weather any downturn in its China business from an extension of export restrictions, says selling more chip equipment to overseas clients. An Australian federal court determined Qantas (QAN.AU) could be liable for more than A$150M of compensation to workers illegally fired during the pandemic. A South Korea court has rejected Young Poong's injunction to suspend Korea Zinc's (010130.KS) stock buyback program it launched to defend itself from YP's and MBK's takeover bid.

  • Digest:

    • China LPRs cut 25 bp in line with top end of Governor Pan's guidance:

      • LPRs were lowered by 25 bp to 3.10% in 1-year and 3.60% in 5-year, consistent with the upper bound of PBOC Governor Pan's guidance last week signaling cuts of 20-25 bp, while Bloomberg consensus unanimously looked for 20 bp easing. Recall Pan also flagged another 25-50 bp RRR cuts by year-end. With the central bank continuing to follow through on explicit easing signals, attention remains largely on the size of fiscal stimulus. Nothing from Friday's State Council meeting, which mainly discussed efforts to unify domestic markets (Xinhua). Recall that economists mentioned the State Council as a possible channel for further clues, though most hopes were placed on the NPC Standing Committee meeting expected in late October. Stimulus optimism was further stoked last week by quotes from President Xi Jinping in Fujian province urging "all-out efforts" in Q4 to achieve annual economic and social development goals (Xinhua), while Vice Premier Ding Xuexiang also called for more effective implementation of existing and incremental support policies (Xinhua).

    • China data beat and forthcoming stimulus prompt 2024 GDP forecast upgrades:

      • Economists broadly acknowledged the positive surprise in Q3 GDP and September activity data. They noted few major new developments or special factors, particularly with nominal GDP growth still undercutting real growth, implying the sixth straight negative GDP deflator, the longest streak since 1999. Key overhang from property market weakness remains but some of the strength was attributed to the government trade-in program for autos and household appliances. Some positive outlook impacts from the relatively bearish camp. UBS upgraded their 2024 GDP forecast to 4.8% from 4.6%. Nomura revised up to 4.7% from 4.6%. JPMorgan projection raised to 4.8% from 4.6%. Common denominator was a technical recalibration in light of the latest results and views were split in terms of added growth impetus. Yet, commentary seemed to indicate growing confidence in the substance of forthcoming stimulus given the fairly explicit policy signals that have all but confirmed the size of the package. On the higher side of consensus, Goldman Sachs maintained their projection at 4.9%. Deutsche maintained at 5.0% and flagged upside risks if additional stimulus is implemented within the next few weeks.

    • Foreign investors pull funds out of Indian stocks and bonds:

      • Foreign institutional investors (FIIs) have sold nearly $10B worth of Indian stocks in October, registering highest-ever monthly outflow and beating previous record seen in March-2020 of around $8.3B (moneycontrol). NSDL data showed FIIs were net sellers for 13 consecutive sessions through 18-Oct, corresponding to more than 4% decline in Nifty 50 MTD. Analysts pointed to strong US economic data, suggesting "no-landing" scenario that drives rally in US dollar and Treasury yields, typically seen negative for EM capital flows. Meanwhile India's outflows in response to China's stimulus measures with prevalence of "Sell India, Buy China' trade. Mint citing strategists noted Chinese stocks were much cheaper than India's and the trade is most likely short-term tactical move but can run for some time, adding large-cap financials under pressure. EconomicTimes added investors are concerned about overvaluation in Indian stocks and lackluster corporate earnings, giving little tolerance for missing estimates. Separately, Bloomberg reported global investors also pulled money out of Indian sovereign bonds that are eligible to trade on global debt indexes for second straight week, prompted in part by RBI's reluctance to cut rates.

    • Japan earnings season begins this week with analyst revisions on the soft side:

      • Nikkei previewed Japan earnings season set to reach full swing this week. Noted elevated attention this round as a potential catalyst for lagging Japan equities to catch up with US peers. Article was based on aggregated analyst forecasts, citing the Nikkei Revision Index (DI of net revisions), which have largely been shaped by yen fluctuations. DI has fallen notably since the August peak and currently in negative territory albeit the latest reading has moved off its lows as yen depreciated back to the 150 level. Noted the biggest negative sectors are largely exporters as of 18-Oct such as transport equipment -44.9%, electric machinery -23.8%, wholesale -17.5%, precision instruments -14.3% and machinery -11.5%. Cited thoughts the notable downshift since September stems from foreign brokerages on the back of adjusted FX forecasts. Other views suggested sentiment tilting back towards moderate yen weakness, limiting downside for corporate earnings. QUICK consensus currently looks for FY24 net profit growth of 11%, overshooting corporate guidance by around 8.5 ppt. Consensus Nikkei 225 forward EPS currently at JPY2,070, up 8% over March. Topix also up 7% to JPY195. Story reaffirmed thoughts that initial corporate guidance in March was conservative, offering more upside for Japan forward EPS relative to the US.

    • BOJ Governor Ueda says macro fundamentals still tracking in line, but uncertainties remain high:

      • In a Friday speech to the national trust association convention read by BOJ Deputy Governor Uchida on behalf of Governor Ueda, summary of economic developments reaffirmed a gradual recovery continues with key dynamics continuing to support the bank's projections for a strengthening in underlying inflation and expectations. Briefly listed risk factors as overseas economic developments, commodity prices, corporate wage/price setting behavior, as well as the domestic economy. Specified financial market impacts on the economy warrant close attention. Also noted FX sensitivity has increased amid more proactive corporate wage/price setting. Observed ongoing broader financial market instability stemming from external uncertainties starting with the US. Pledged careful monitoring of this aspect and to assess the impact on the outlook scenario. Nikkei discussed Daiwa Institute of Research analysis showing cost of production rose 1.6% y/y in Jul-Aug, with 1.0 ppt contribution from payrolls and the remainder from goods, illustrating the shift in drivers toward wage passthroughs. Separately, Nikkei reviewed Rengo's 2025 shunto mission statement calling for continued pay raises of at least 5%. Highlighted 3% base pay rises as key, fitting with BOJ calculations of 2% trend inflation plus 1 ppt from productivity growth.

    • Notable Gainers:

      • +29.1% 2727.HK (Shanghai Electric Group): to acquire 100% stake in Ningsheng industrial

      • +1.5% 5929.JP (Sanwa Holdings): raises H1 guidance due to the impact of forex fluctuations as well as solid performance in North America and Japan

      • +1.5% 7731.JP (Nikon Corp): EssilorLuxottica raises stake to 7.38% from 5.10%; separately, company reportedly experiencing boosted exports of its semiconductor equipment; expects to weather any downturn in China business from extension of restrictions

      • +1.4% 300750.CH (Contemporary Amperex Technology Co.): reports 9M earnings; posts operating profit growth year-on-year

      • +1.0% 2899.HK (Zijin Mining Group): reports 9M results; posts operating profit growth year-on-year

      • +0.8% 002230.CH (Iflytek): reports Q3 results; analysts highlight recovery in profitability

    • Notable Decliners:

      • -34.8% 570.HK (China Traditional Chinese Medicine Holdings): Sinopharm's privatization offer for China Traditional Chinese Medicine lapses due to lack of ODI approvals

      • -13.8% MIN.AU (Mineral Resources): following earlier media report, confirms investigation into claims of tax evasion by MD Chris Ellison

      • -7.2% 9922.HK (Jiumaojiu International Holdings): reports Q3 operational update; Rai Er same store average daily sales declined (18.3%) year-on-year

      • -3.7% 2914.JP (Japan Tobacco): mediator proposes CCAA plan to resolve tobacco product-related claims, litigation in Canada; under the proposed plan three companies including JTI-Macdonald Corp. would pay an aggregate settlement amount of C$32.5B (¥3.514T)

      • -3.2% 9749.JP (Fuji Soft): despite founder/shareholder Hiroshi Nozawa reportedly urging Fuji Soft to back Bain's bid, company announced it will continue to recommend KKR's offer; company believes Bain's offer is "sincere" and will continue to consider it

      • -2.9% 6701.JP (NEC Corp): Citi downgrades to sell from neutral citing valuation

  • Data:

    • Economic:

      • No economic data today

    • Markets:

      • Nikkei: (27.15) or (0.07%) to 38954.60

      • Hang Seng: (325.65) or (1.57%) to 20478.46

      • Shanghai Composite: 6.55 or +0.20% to 3268.11

      • Shenzhen Composite: 30.10 or +1.58% to 1936.97

      • ASX200: 61.20 or +0.74% to 8344.40

      • KOSPI: 11.10 or +0.43% to 2604.92

      • SENSEX: (29.18) or (0.04%) to 81195.57

    • Currencies:

      • $-¥: +0.31 or +0.21% to 149.8470

      • $-KRW: +7.48 or +0.55% to 1376.9900

      • A$-$: (0.00) or (0.28%) to 0.6688

      • $-INR: +0.00 or +0.01% to 84.0737

      • $-CNY: +0.01 or +0.16% to 7.1133

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