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StreetAccount Summary - Asian Market Recap: Nikkei (0.72%), Hang Seng +0.83%, Shanghai Composite +0.62% as of 03:10 ET

Dec 18 ,2024

• Synopsis:

  • Asia equity markets ended mixed Wednesday. Japan's markets gapped lower at the open and ended near their day's troughs. Losses in India, most of Southeast Asia. Australia was flat. Some gains in Greater China benchmarks in a wide rally, South Korea's Kospi also ended higher. Taiwan's Taiex supported. US futures positive for now, Europe opened a point or two higher. US dollar flat, AUD fell to two-year low, rupee to another record low; yen and yuan unchanged. Treasury yields higher, CGB yields dipped on PBOC's risk reduction report. Crude futures slightly higher, base and precious metals lower. Cryptocurrencies sharply lower.

  • Asia markets diverged ahead of probable Fed rate cut this evening. Greater China benchmarks bounced back from several days of losses, and South Korea's Kospi also largely pared Tuesday's down day despite the Bank of Korea warning on growth this year and next due to a lackluster consumer. Bank Indonesia kept its base rates steady as it focuses on rupiah support, and the Bank of Thailand also held steady as fiscal policy seen kicking in to support the economy.

  • Elsewhere, Bloomberg reported the White House is set to launch another probe into China semiconductors focusing on foundational chips although a final decision will be make under the new administration. Japan's export growth rose to a three-month high while imports fell unexpectedly. Ahead, Fed Reserve widely expected to trim base rate by 25 bps with greater focus on accompanying message and members' dot plot for confirmation members have dialed back 2025 cuts to three from four. Thursday, BOJ expected by most economists to hold steady on rates, while there will also be central bank decisions in Taiwan and the Philippines.

  • Nissan Motor (7201.JP) and Honda Motor (7267.JP) are considering a merger or future collaboration following both companies' struggles in China and poor Nissan results; Nissan stock substantially higher; merger talks accelerated by interest from Hon Hai Precision (2317.TT) for Nissan Motor. Bain Capital is to launch a hostile takeover bid for Fuji Soft (9749.JP), potentially starting a bidding war with rival KKR. Kioxia (285A.JP) began trading in Tokyo at the low end of its IPO price but closed with a small gain. JSW Energy (533148.IN) and LG Energy Solution (373220.KS) are in talks to form a joint venture to manufacture EV batteries and renewable energy storage facilities.

• Digest:

  • Honda and Nissan said to begin merger talks, Hon Hai waiting in the wings:

    • Nikkei reported Honda (7267.JP) and Nissan (7201.JP) will enter merger talks, pooling resources to better compete against Tesla (TSLA) and Chinese EV makers. Companies are considering a holding company and will soon sign MOU. Stakes and other details to be determined later. They also look to eventually bring Mitsubishi Motors (7211.JP) into the holding company as Nissan is the top shareholder with a 24% stake. Combined auto sales would top 8M units, which would be the third-largest conglomerate globally. Both companies issued statements in response indicating they are exploring a range of opportunities (Nikkei). TBS reported an announcement could be made as early as 23-Dec. Nikkei noted Honda and Nissan began laying the groundwork for negotiations in March and forged a strategic partnership in August on shared automotive components and software. Mitsubishi also had expressed its intention to collaborate. In subsequent news, Nikkei sources indicated merger talks aimed at heading off an acquisition attempt by Hon Hai Precision (2317.TT) which had been working behind the scenes to build a stake in Nissan.

  • Bank of Korea Governor says slackening consumer demand to hit FY 2024 growth:

    • Bank of Korea Governor Rhee said final GDP growth will likely be lower than current forecasts because of protracted slump in private spending. Said Q4 growth could be around 0.4% or lower versus previous 0.5% forecast to give full-year y/y GDP growth of 2.1% versus previous estimate of 2.2%. Rhee said next year's growth could also be slower than expected 1.9% (Yonhap). Report said domestic economy could fall into extended slump with disinflation if potential growth continues to slide. Added effectiveness of BOK policies could be capped, asset prices face upward pressure in this scenario (Yonhap). However, Governor Rhee, in presenting bank's bi-annual review of bank's inflation-targeting monetary policy, added economy unlikely to enter low-inflation phase of sub-1% in next two years as price pressure from strong dollar, climate change persists (Reuters). Also said expected won to rally as political process stabilizes, would intervene again in forex market if excessive volatility is seen.

  • Central banks in Indonesia and Thailand hold rates steady:

    • Bank Indonesia (BI) and Bank of Thailand (BOT) kept base interest rates unchanged Wednesday as both banks paused on their rate cut cycle for differing rationale. BI held its 7D reverse repo rate at 6.0% versus split consensus of 25 bp cut and a hold, as bank remains focused on supporting rupiah. Several analysts prior to decision said rupiah under such pressure BI was unlikely to cut while others noted softer economic growth, especially in consumer sector, and lower inflation may have led to cut. BOT kept 1D repo rate steady following last month's surprise 25 bp cut, maintained neutral stance. MPC voted unanimously to keep rate unchanged. Economists had noted uptick in GDP growth last quarter as fiscal spending, consumer stimulus had begun to positively impact growth with less emphasis on monetary stimulation. Inflation had also ticked higher in November to around 1%, but was still below BoT 1-3% target range.

  • BofA FMS shows Trump policy risks cast major shadow over investor sentiment:

    • Key takeaway from the BofA Asia FMS was a sharp drop in APAC ex-Japan economic optimism with net 3% of respondents now seeing a weaker economic outlook over the next year, compared to net 39% expecting stronger economic conditions last month. Over 80% anticipate Trump policies to adversely impact the region. Trump administration expected to impose punitive tariffs on China with a weighted average estimate of nearly 25%. China expected to respond with more stimulus, tit-for-tat retaliation and allow yuan to weaken vs dollar. By country, Japan remained the most preferred market by a wide margin, followed by Taiwan and Singapore. These were the only net overweight markets. China slipped to equal fourth place from second with a net neutral weighting. Dynamics remain largely unchanged as bulk of investors see China households remaining frugal. Somewhat higher proportion of panelists moved to the sidelines and looking for opportunities elsewhere. India was eighth with a slight net underweight. Big development was South Korea in last place with net 32% underweight. No elaboration though follows political turmoil triggered by the martial law decree. By sector, tech remained the favorite in APAC ex-Japan, though moderating. Japan banks still strongly in favor.

  • More consensus polls point to BOJ on hold tomorrow:

    • Nikkei QUICK monthly BOJ Watcher survey showed eight out of 23 respondents looked for a BOJ rate hike this week with 12 picking January. Compares with last month's poll that showed expectations for these two months were neck and neck. Article noted December case included thoughts that a market disappointment would cause market turbulence and renew yen depreciation risk. January rationale argues that current yen levels will not compel BOJ to act. Ten analysts viewed a USD/JPY rate of 160 as a catalyst for a rate hike, followed by six at 155 (compared to current market level in at mid-153). Additional thoughts that a rate hike now just after the Ishiba administration pushed through the stimulus package would invite scrutiny over the inconsistency in fiscal and monetary policies and increase the risk of government opposition to additional rate hikes later. Story highlighted Sompo Institute Plus's outlier prediction that BOJ will hold off until March as board members compile wage hike developments heading into the 2025 shunto until the last minute. Projections over the next two years remain moderate as 13 economists expect a policy rate of 0.75% at 2025-end, while 11 see the rate at 1.0% at 2026-end. With rate hike increments assumed to be 25 bp each, this points to just three hikes.

  • Notable Gainers:

    • +23.7% 7201.JP (Nissan Motor): reportedly in talks to merge with Honda; deal may be announced 23-Dec

    • +19.6% 7211.JP (Mitsubishi Motors): Honda, Nissan reported enter negotiation for a merger and may eventually consider a three-way deal with Mitsubishi

    • +5.4% 066570.KS (LG Electronics): unveils second corporate value-up program; plans to retire 761K treasury shares acquired within scope of distributable profits

    • +4.3% 1193.HK (China Resources Gas Group): appoints Qin Yan as CEO, effective today

    • +1.3% 9749.JP (Fuji Soft): opposes Bain Capital's ¥9,600/share tender offer, reaffirms support KKR's offer; Bain to launch hostile takeover bid

  • Notable Decliners:

    • -18.5% 1907.HK (China Risun Group): enters into top-up placement agreement to sell 52M-share at HK$3.00/share

    • -3.0% 7267.JP (Honda Motor): reportedly in talks to merge with Nissan; deal may be announced 23-Dec

• Data:

  • Economic:

    • Japan

      • November trade balance (¥117.6B) vs consensus (¥688.9B) and revised (¥461.2B) in prior month

        • Exports +3.8% y/y vs consensus +2.8% and +3.1% in prior month

        • Imports (3.8%) y/y vs consensus +1.0% and +0.4% in prior month

  • Markets:

    • Nikkei: (282.97) or (0.72%) to 39081.71

    • Hang Seng: 164.07 or +0.83% to 19864.55

    • Shanghai Composite: 20.72 or +0.62% to 3382.21

    • Shenzhen Composite: 11.75 or +0.58% to 2025.53

    • ASX200: (4.60) or (0.06%) to 8309.40

    • KOSPI: 27.62 or +1.12% to 2484.43

    • SENSEX: (402.66) or (0.50%) to 80281.80

  • Currencies:

    • $-¥: +0.08 or +0.05% to 153.5780

    • $-KRW: (2.94) or (0.20%) to 1436.3100

    • A$-$: (0.00) or (0.40%) to 0.6313

    • $-INR: +0.03 or +0.04% to 84.9393

    • $-CNY: (0.00) or (0.01%) to 7.2845