Jan 27 ,2025
Synopsis:
Asia equities ended sharply diverged Monday. There were steep losses in Japan's technology stocks that led the Nikkei to finish much lower while the Topix remained positive. Shenzhen and the ChiNext index both finished much lower but the Hang Seng ended higher along with the Shanghai A-Share benchmark. More losses for India on poor earnings, Southeast Asia markets that were open fell. Market holidays in Australia, South Korea, Taiwan, Indonesia. US futures firmly lower, Europe opened lower. Dollar higher on fresh Trump tariff stories, Asia currencies weakening. Treasuries mixed, JGB yields all lower. Crude oil and precious metals down, base metals also under pressure. Cryptocurrencies down with bitcoin below $100K.
Asia equities polarizing Monday. The Hang Seng rose sharply as technology stocks there were boosted by reports of cheap AI chips being developed at a Chinese start-up firm DeepSeek but the same news weighed on several Japanese tech names to send the Nikkei lower. The US dollar is trading higher after Trump threatened, then backed off on, tariffs on Columbia-made goods following a deportee row, while he repeated a threat to tax Canada- and Mexico-made goods as early as next week.
China PMIs showed manufacturing unexpectedly contracted for the first time since August while non-manufacturing activity also slowed sharply. Export orders at five-month low while construction activity stalled. The country's industrial profits showed a slight improvement in December but were down for a third year in a row on an annual basis. South Korea's President Yoon was charged with leading an insurrection but those of abuse of power were dropped.
Fuji Media (4676.IN) said its chairman and head of its television unit would step down amid probe into one of its TV hosts. Softbank (9984.JP) to sound out investment firms Apollo and Brookfield for Stargate funding. Advantest (6857.JP) stock reacted negatively to reports a DeepSeek AI model using cheap semiconductor AI chips. Times China Holdings (1233.HK) had its winding up petition hearing posted until May-25. UltraTech Cement (532538.IN) is in advanced talks with Heidelberg Cement over the acquisition of HeidelbergCement India (500292.IN).
Digest:
China manufacturing PMI slips into contraction in January:
Official manufacturing PMI was 49.1 in January, well below consensus and prior month's 50.1. Reading contracted to slowest pace since August. Production fell into contraction after three-month expansion. New orders subindex dropped to five-month low with exports continuing to lag. NBS said slowdown in activities were due to Lunar New Year holiday and concentrated returns of workers to their hometowns. Highlighted metal products, specialized equipment, railway, shipbuilding and aerospace equipment as growth sectors, while F&B, textiles and non-ferrous metal smelting as laggards. Inflation metrics logged milder declines, particularly input prices. Employment still in contraction, unchanged from December while finished goods inventories saw larger drops. Enterprises of all sizes saw softer activity levels with bigger contractions in small-sized firms. Non-manufacturing PMI fell to 50.2, missing consensus 52.0 and December's 52.2. Construction sector registered substantial slowdown while expansion in services sector slowed. Composite PMI dropped to 50.1 from 52.2.
Trump holds off on Colombia tariffs, but momentum for Canada, Mexico tariffs is growing:
President Trump held off on tariffs and sanctions on Colombia (Bloomberg). Follows earlier Truth Social post announcing 25% tariffs on Colombia that would increase to 50% in a week after Colombian President Petro refused landing permission for US military plane carrying illegal migrants. Petro denounced use of military transport as degrading and announced retaliatory tariffs of 25% (Reuters, Bloomberg). White House statement said Colombia agreed to all of Trump's terms, including accepting returning illegal immigrants on US military aircraft. Development seen emboldening Trump's use of tariffs to advance his agenda with separate press report citing senior administration officials who say momentum is growing to impose 25% tariffs on Mexico and Canada as soon as 1-Feb. While markets took some comfort from lack of tariff action last week, Trump said to be open to imposing tariffs first before negotiations. Growing concern within Mexico and Canada that efforts to satisfy Trump's border demands are falling short with Trump believing his tariff threat not being taken seriously. Both countries have threatened to retaliate against any Trump tariffs.
China AI startup DeepSeek raises questions over US AI leadership:
China AI startup DeepSeek getting more attention after revealing low cost, open-source LLM using less advanced AI chips (FT, link, CNBC). Differing reports over which NVDA chips were used with some noting DeepSeek used H800s to develop its R1 model on budget of just $5.6M, fraction of amount spent by companies like OpenAI and GOOGL on comparably sized models. DeepSeek R1 reportedly outperformed OpenAI o1 in third-party tests and released paper outlining ways to develop LLMs on smaller budgets. Press takeaways noted development raised questions about relative extent of spending by US tech giants on AI design and ROI (and potential implications for NVDA AI accelerator demand). Also renewed skepticism about effectiveness of US tech controls aimed at blocking China's access to advanced chips. Growing popularity of DeepSeek saw it rise to number one on iPhone download chart in US (Bloomberg). At same time, analysts argued DeepSeek hype may be overdone, with its technology lagging OpenAI and Google applications. Also questions about extent of China government influence, along with risk of US tightening export controls further in response.
China industrial profits fall for the third straight year despite December uptick:
China's industrial profits fell in 2024 for third consecutive year, dropping 3.3% after 2.3% decrease in 2023. Industrial profits surged 11% y/y in December, following 7.3% slump in prior month, helping narrow full-year contraction. NBS statistician attributed December's improvement to Beijing's stimulus package rolled out in late September. Revenues in December rose 4.2% y/y, compared with 0.5% in prior month, bringing whole-year revenue growth to 2.1%. NBS highlighted equipment makers and producers of home appliances as both reported surge in profits in Q4 and benefited from government's push to subsidize purchases of consumer goods and machinery by households and businesses. Profits at state-owned firms dropped 4.6% in 2024, those at foreign firms fell 1.7% while private-sector companies logged 0.5% rise in earnings. Bloomberg added corporate finances have become more strained as country grapples with deflationary pressures amid weak consumption and pressure on balance sheets seen unlikely to ease any time soon.
South Korea President Yoon indicted over insurrection charges:
Prosecutors Sunday indicted South Korea's President Yoon Suk Yeol on charges of leading an insurrection linked to his declaration of martial law in December. Indictment said Yoon conspired with Defense Minister Kim and others to incite insurrection by declaring unconstitutional, illegal state of emergency despite absence of war signals, armed conflict or comparable national crisis (Yonhap). Yoon further accused of planning to arrest key political figures including rival party heads, election regulator officials; alleged to have deployed military forces to parliament to prevent lawmakers from voting down martial law. Moves come after court twice refused prosecutors' request to extend Yoon's detention to enable further investigation (Reuters). Charges stem from country's anti-corruption office investigation but prosecutors dropped abuse of power charges as Yoon covered by immunity, still faces impeachment trial in Constitutional Court. Yoon's lawyers said indictment 'worst choice' by prosecution, opposition parties welcomed charges.
Notable Gainers:
+7.6% 2039.HK (China International Marine Containers (Group)): guides FY net income attributable CNY2.50-3.50B vs FactSet CNY2.56B
+4.9% 1448.HK (Fu Shou Yuan International Group): declares special dividend HK$0.3882/share
+2.5% 1339.HK (People's Insurance Co. (Group) of China): guides FY net income attributable CNY39.85-44.41B vs FactSet CNY39.86B
+2.3% 7732.JP (Topcon): Oasis Management discloses 7.38% stake
+1.1% 4503.JP (Astellas Pharma): raises FY core operating profit guidance
Notable Decliners:
-13.5% 1233.HK (Times China Holdings): winding-up petition hearing adjourned to 19-May
-8.6% 6857.JP (Advantest): DeepSeek AI model from China reportedly raises concerns about US technological leadership
Data:
Economic:
China
January official manufacturing PMI 49.1 vs consensus 50.1 and 50.1 in prior month
Non-manufacturing PMI 50.2 vs consensus 52.0 and 52.2 in prior month
Composite PMI 50.1 vs 52.2 in prior month
Jan-Dec 2024 industrial profits (3.3%) y/y vs (4.7%) in Jan-Nov
December industrial profits +11.0% y/y vs (7.3%) in prior month
Markets:
Nikkei: (366.18) or (0.92%) to 39565.80
Hang Seng: 131.58 or +0.66% to 20197.77
Shanghai Composite: (2.03) or (0.06%) to 3250.60
Shenzhen Composite: (25.26) or (1.30%) to 1911.09
ASX200: Closed
KOSPI: Closed
SENSEX: (722.65) or (0.95%) to 75467.81
Currencies:
$-¥: (0.45) or (0.29%) to 155.5670
$-KRW: +4.95 or +0.35% to 1434.4800
A$-$: (0.00) or (0.46%) to 0.6282
$-INR: +0.24 or +0.28% to 86.4334
$-CNY: +0.02 or +0.29% to 7.2648
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