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StreetAccount Summary - Asian Market Recap: Nikkei +1.82%, Hang Seng +0.04%, Shanghai Composite +0.68% as of 04:10 ET

Oct 28 ,2024

  • Synopsis:

    • Asian equities mostly higher Monday. Japan outperformed as yen slid to three-month low after PM Ishiba's coalition lost parliamentary majority in Sunday's election. Korea, Greater China and Australia all ended higher. Taiwan and southeast Asia were lower. India rebounding. US futures advancing. 10Y Treasury yield rose to 4.28%, highest in more than three months. JGB curve bear steepening. Apart from yen, dollar also firmer against major Asian currencies except KRW which South Korean finance minister vowed to fight currency volatility. Crude down sharply following Israel's restrained retaliation against Iran which avoided oil and nuclear sites. Gold and base metals also weaker. Bitcoin higher.

    • Japan's LDP/Komeito coalition lost majority in lower house of parliament for first time since 2009 in Sunday's general election, casting uncertainty over the future of Prime Minister Ishiba's government less than a month after he took office. Unlikely to have near-term monetary policy implications with BOJ expected to keep rates unchanged on Thursday. Still, potential inflation implications from yen weakness seen factoring into rate year-end rate hike debate.

    • PBOC launched new outright reverse repo facility in latest effort to ensure adequate medium-term liquidity to counter year-end shortfall. Sunday's data showed China's industrial profits fell at quickest pace in the year amid weak demand and PPI deflation. Vice finance minister Liao Min said China's rollout of macro policies is to expand domestic demand and reach this year's growth target. Reiterated size of fiscal policies will be "quite large" while details of package will only come after NPC Standing Committee meeting concludes on 8-Nov. In other developments, latest weakness in Korean won prompted vow by South Korea's finance minister to act against excess volatility while BOK Governor Rhee said exchange rate will re-emerge as major factor in its policy meeting in November. Thailand's exports rose for third straight month in September but came less than expected. Indonesia blocks Apple's sale of iPhone 16 in the country, saying the company has yet to meet local investment requirements.

    • Olympus (7733.JP) said CEO Stefan Kaufmann has stepped down after allegations he purchased illegal drugs; shares tumbled. Alibaba (9988.HK) agreed to pay $433.5M to settle US class-action lawsuit filed by investors alleging monopolistic practices by the company while it denied any wrongdoing. Evergrande New Energy Vehicle (708.HK) shares fell sharply after talks for a stake sale in the company fell apart.

  • Digest:

    • Japan LDP/Komeito coalition loses lower house majority for the first time since 2009:

      • According to NHK, LDP won 191 lower house seats in Sunday's lower house election, while Komeito took 24, for a coalition total of 215 with 233 needed to win a majority. This marks the first loss for the coalition since 2009. Compares with pre-election total of LDP 247 (revised to reflect candidates denied endorsement and ran as independents) and Komeito 32. Biggest gainer was Constitutional Democratic Party (CDP) with 148 seats from 98. Japan Innovation Party (JIP) fell to 38 from 43, Democratic Party for the People (DPP) strengthened to 28 from seven. Nikkei said coalition will be forced to find new partners or manage the government as a minority ruling coalition. Special Diet session to elect a prime minister will be convened within 30 days of the election, when members of both houses will elect a prime minister, albeit votes expected to stay within party lines. PM Ishiba in a TV Asahi interview said he was open to cooperation with other parties, though article noted that would likely take time and require tough negotiations. At a Monday press conference, Ishiba confirmed he intends to stay on as premier (Nikkei). DPP and JIP rejected the possibility of joining the LDP-led coalition (recall prior discussions pointed to these parties as potential allies). CDP leader Yoshihiko Noda was quoted in an online interview saying he is also willing to cooperate with other parties to form government.

    • Japan equity strength put down to 'glass half full' themes:

      • Japan benchmarks closed up sharply on Monday, a surprising turn of events given the political uncertainties in the wake of the LDP's election defeat. First rationale was talk that such an outcome was priced in (Nikkei), promoting a sell-the-rumor, buy-the-fact dynamic as many participants were either sidelined or pared positions ahead of the vote. Second was that policy implications will actually be positive for markets as the coalition will now be forced to cooperate with minority parties to push through legislation and several of them were pledging more aggressive growth policies in their election campaigns. Concurrently, policymakers are expected to be more wary of introducing unpopular policies, such as hikes to capital gains and corporate taxes, given their tenuous position. A Nikkei discussion highlighted relief the stock market avoided another Black Monday event, underscoring the depths of preceding concerns. Article noted Nikkei futures were down sharply in the lead-up to the cash open and cited many forecasts that saw the possibility of losses of as much as 1,000 points in absolute terms. Adding to market color were thoughts the worst-case scenario of the LDP becoming a minority party was avoided. Yen sold off sharply, also on the back of fiscal expansion implications in addition to speculation the election results may prompt BOJ to delay the next rate hike.

    • PBOC launches outright reverse repo as new monetary policy tool:

      • PBOC said it would add outright reverse repo to policy toolkit to help maintain adequate liquidity in banking system, targeting trades with primary dealers. Added it will conduct operation once a month with maturity not exceeding one year. Treasury, local government, financial and corporate bonds can be used as collateral. Bloomberg noted PBOC has been revamping policy framework in a shift to operate more like global peers and influence market borrowing costs more effectively. Policymakers have been transitioning to using seven-day reverse repo rate as main policy rate while downplaying role of one-year MLF rate. Cited Standard Chartered strategist who said this tool likely to provide longer-term liquidity injection to interbank market and could help with expected increase in government bond issuance. ShanghaiSecuritiesNews said new tool seen to supplement existing ones for liquidity management while money market gauges are showing China's banks and non-bank financial institutions are under funding stress, facing year-end rise in cash demand and potential new government borrowing as fiscal stimulus. Caixin noted China has about CNY1.45T ($204B) of MLF loans to mature in November and December, which new tool can help offset sizeable portion.

    • China industrial profit growth falters, NPC Standing Committee to convene next week:

      • Headline industrial profits fell 3.5% y/y in Jan-Sep, following 0.5% growth in Jan-Aug and marks the biggest decline since November last year. September profits dropped 27.1% y/y, accelerating from a 17.8% decline in the prior month. NBS cited insufficient demand, sharper decline in producer prices and unfavorable base effects. YTD aggregates were broadly soft with most major segments negative -- manufacturing profits fell 3.5% while mining was down 10.7%. High-tech grew 6.3%, contributing 1.1 ppt to the headline. Consumer goods rose 2.4% and added another 0.5 ppt contribution, supported by policy support. Going forward, NBS urged for the implementation of announced stimulus measures. Attention turns to the NPC Standing Commitee slated for Nov 4-8 for a highly anticipated announcement on the size of fiscal stimulus. Recall latest reports indicated central government may issue an additional CNY6T ($842B) in treasury bonds over three years to fund the stimulus package (Caixin). Some funds to be allocated to local government debt assistance. Prior to that article, consensus gravitated to a headline size of CNY2T for this year based on a Reuters article indicating CNY1T to be allocated to consumption stimulus and the remainder for local government debt restructuring.

    • South Korea vows swift response to won volatility while exchange rate reemerges as major factor in BOK decision:

      • South Korean finance minister Choi Sang-mok said authorities will enhance market monitoring and act swiftly to curb excessive won volatility as currency hit lowest level since late July (Bloomberg, Yonhap). Choi made remarks after Q3 GDP rose 0.1% q/q, below consensus, amid drag from exports and won has slumped more than 5% in October, fueling concerns about financial stability. Choi pointed to US election, economic situations of major countries and Middle East tensions as major risks. Recall Seoul made it easier for foreign investors to trade won from July to boost case for its stocks and bonds to be added to global indexes (Bloomberg) while analysts expected recent addition of Korean bonds to FTSE Russell World Government Bond Index would ultimately attract foreign inflows of $56 to $70B. Meanwhile, Yonhap reported BOK chief Rhee Chang-yong said exchange rates have re-emerged as major factor in determining future interest rates, adding dollar strengthening in past two weeks is faster than expected. Rhee said BOK will consider slowing export growth, macroeconomic policy effect to stabilize financial market and possible dollar rally in its November meeting.

    • Notable Gainers:

      • +14.5% 884.HK (CIFI Holdings (Group)): ~78% of creditors support the restructuring support agreement

      • +14.4% 4519.JP (Chugai Pharmaceutical): reports Q3 core net income attributable ¥111.80B vs FactSet ¥90.66B; raises FY guidance, now guides core operating income ¥540B vs prior guidance ¥460B

      • +5.3% 2801.JP (Kikkoman): to buy back up to 11M shares

      • +4.6% 7163.JP (SBI Sumishin Net Bank): NTT Docomo reportedly interested in SBI Sumishin Net Bank

      • +3.8% 010130.KS (Korea Zinc Co.): completes buyback of 2.3M shares at KRW890,000/sh; has now secured 11.3% stake together with Bain, anticipation of fierce competition for shares in open market between chairman Choi and MBK consotium

      • +3.3% 6954.JP (FANUC Corp.): reports Q2 net income attributable ¥41.1B vs StreetAccount ¥33.88; raises FY guidance, now guides operating income ¥150.80B vs prior guidance ¥143B

      • +3% 000270.KS (Kia Corp.): raises FY guidance, now guides FY operating profit KRW12.8-13.2T vs prior guidance KRW12.0T

      • +1.6% 4507.JP (Shionogi & Co.): reports Q2 operating profit ¥47.8B vs FactSet ¥41.65B, revenue ¥116.4B vs FactSet ¥115.74B

      • +0.4% 600519.CH (Kweichow Moutai): reports Q3 net income attributable CNY19.13B vs FactSet CNY20.13B

    • Notable Decliners:

      • -12.5% 1801.HK (Innovent Biologics): sells 20.4% stake in Fortvita for $20.5M (HK$160M) to Lostrancos

      • -6.5% 011210.KS (Hyundai WIA): reports Q3 operating profit KRW52.92B vs FactSet KRW71.51B

      • -5.6% 7733.JP (Olympus): president/CEO Stefan Kaufmann resigns amid suspicion of illegal drug purchases

      • -5.4% 2333.HK (Great Wall Motor): reports Q3 net income attributable CNY3.35B, (7.8%) y/y

  • Data:

    • Economic:

      • China

        • Jan-Sep industrial profits (3.5%) y/y vs +0.5% in Jan-Aug (27-Oct)

        • September industrial profits (27.1%) y/y vs (17.8%) in prior month

    • Markets:

      • Nikkei: 691.61 or +1.82% to 38605.53

      • Hang Seng: 9.21 or +0.04% to 20599.36

      • Shanghai Composite: 22.50 or +0.68% to 3322.20

      • Shenzhen Composite: 27.93 or +1.41% to 2002.58

      • ASX200: 10.20 or +0.12% to 8221.50

      • KOSPI: 29.16 or +1.13% to 2612.43

      • SENSEX: 998.70 or +1.26% to 80400.99

    • Currencies:

      • $-¥: +1.06 or +0.70% to 153.3570

      • $-KRW: (5.08) or (0.37%) to 1383.7600

      • A$-$: (0.00) or (0.20%) to 0.6596

      • $-INR: (0.03) or (0.03%) to 84.0733

      • $-CNY: +0.01 or +0.10% to 7.1281

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