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StreetAccount Summary - Asian Market Recap: Nikkei +0.56%, Hang Seng +1.17%, Shanghai Composite (0.27%) as of 04:10 ET

Aug 09 ,2024

• Synopsis:

  • Asian equities ended mostly higher Friday to cap a volatile week. South Korea's Kospi and Taiwan's Taiex led the gainers, the Hang Seng also gained again although mainland China boards fell slightly. Japan's benchmarks experienced another volatile day but finished higher. Australia closed with gains, India is trading higher, Southeast Asia was also largely higher. Singapore closed for a holiday. US futures mixed, Europe slightly higher in the first hour. US dollar flat, won and New Zealand dollar surging, others relatively unchanged. Treasury yields mixed, JGB yields higher, CGB yields also higher following further supportive moves by Beijing. Crude and precious metals flat, base metals mixed.

  • An air of calm in Asia Friday with most major benchmarks gaining ground and tech stocks advancing, supported by very strong July revenue numbers from chipmaker TSMC. More modest gains in Hong Kong, pillared by a better-than-expected inflation print out of China although the markets had opened higher before the data was released with many analysts pointing to cheap valuations, low beta dynamics and rotation out of Japanese stocks. Risk-on mood also helping the Australia and Japan markets, although the latter did see another volatile day, gapping almost 2% higher before falling back then rallying into the close.

  • China CPI inflation rose to its quickest pace since February but driven in part by weather-related spike in food prices. Slowdown in core inflation viewed as more representative of tepid domestic demand. PPI deflation unchanged. Malaysia industrial production higher than expected, Indonesia retail sales grew for second consecutive month. In political developments, Thailand's election-winning and now banned Move Forward party relaunched as the People's Party.

  • TSMC (2330.TT) said revenue rose 45% in July y/y as demand for AI-related chips continued to rise. Ola Electric (544225.IN) shares traded significantly higher in their debut in Mumbai after raising around $733M via its initial offering. Reliance Industries (500325.IN) is said to be close to agreeing a crude-for-naphtha swap deal with Venezuela.

• Digest:

  • China consumer prices rise faster in July, beating expectations:

    • CPI rose 0.5% y/y in July, beating consensus 0.3%, following 0.2% in the previous month. It was higher 0.5% m/m, compared with 0.2% contraction in June. NBS noted consumer demand continued to recover, adding high temperatures and heavy rainfall in parts of the country contributed to pick-up in consumer inflation. Core inflation was 0.4%, down from 0.6% in June. Food prices were higher marginally while fresh vegetables were higher from being a drag in June. Pork prices rose 20.4%, compared with 18.1% in June. Goods prices were 0.5% y/y higher while there was 0.6% rise in services. YTD aggregate rose to 0.2%, still notably weaker than government target of 3%. PPI fell 0.8% y/y in July, slightly better than 0.9% contraction expected and was the same with June, the smallest decrease since January 2023. Early takeaways suggested data is offering signs of recovery in domestic demand that has weighed on China's growth this year as country battles longest streak of deflation since 1999 (Bloomberg).

  • Strategists lower targets for Japan equity indexes amid yen appreciation, US recession risk:

    • Strategists downgrading Japan equity index price targets amid recent volatility (Bloomberg). JP Morgan lowered year-end TOPIX and Nikkei targets to 2700-2800 (from 2950) and 39K-40K (from 42K). Revised targets still above current levels for both indexes. Yen appreciation prompted firm to downgrade EPS growth forecast to 4% from 8%. Also lowered P/E estimate to 15-15x (from 16x) amid increased risk of US recession. Comes after UBS downgraded year-end projections for Nikkei to 39K from 42K, and TOPIX down 2800 from 3000. Domestically focused sectors with defensive profile and high capital return were favored. Volatile conditions expected to persist over near-term. JP Morgan's quant team this week warned of bull trap amid uncertainty around whether a bearish narrative will ultimately prevail. Noted while CTA-driven selling pressure has eased, elevated volatility limited scope for immediate rebuild of long positions. Strategists have also pointed out Japan faces catalyst vacuum until September, leaving markets vulnerable to sharp swings in either direction.

  • China markets prove resilient amid global volatility, but sentiment remains weak:

    • China equities have generally withstood recent volatility in global markets, a resilience considered more a function of low beta dynamics and preceding underperformance. Valuations already at depressed levels with Bloomberg-compiled data showing CSI 300 P/E at 35% discount to MSCI World. However, still some thought valuation discount justified given China's myriad headwinds from slowing growth, earnings uncertainty, depressed property market, and geopolitical/trade tensions. Morgan Stanley noted sharp drop in A-share sentiment in week ended 7-Aug amid pickup in global volatility and weak macro data. Northbound outflows accelerated to $2.4B, taking year-to-date inflows to just $900M and almost turning negative for first time ever. Anticipates downward earnings revision to reaccelerate going further into Q2 earnings season. Southbound flows remain positive, UBS seeing continued support for H-Shares with money favoring defensive names and high yielders amid the economic uncertainty.

  • Yen carry trades have unwound, but some strategists see more rollback:

    • Debate continues over when yen carry unwind will end and how much is left to be unwound. UBS estimated $200B of $500B carry positions accumulated since 2011 have been unwound in recent weeks (FT) while Morgan Stanley estimated some 60% of trades have reversed. Analyzing CFTC data, Morgan Stanley noted dollar-yen still 50-60% outside fair value with yen shorts potentially still 40-50% above pre-correction levels. Nomura estimated short yen positions have shrunk to around half of most recently disclosed CFTC data on 30-Jul. Noted carry trades have not fully rolled back with macro funds still carrying positions. Added that if upcoming CFTC data bears this situation out, it could disappoint market participants who had been expecting a full unwind. Meanwhile, JP Morgan saw limited upside for yen, noting dollar-yen level of 144 is consistent with current forecast for 125 bp of Fed rate cuts and another 25 bp BOJ rate hike (vs current 147.48). Added that persistence of negative real rates in Japan likely to limit medium- longer term upside for yen.

  • Mixed messaging from BOJ adds to sense of confusion over policy outlook:

    • BOJ's rate hike and ensuing volatility has renewed scrutiny on central bank's communication (Bloomberg). Governor Ueda's remarks in post-meeting press conference that were perceived as hawkish kicked off a yen spike that fueled a historic drop in Japanese equities. That ultimately led to Deputy Governor Uchida seeking to downplay prospects of a rate hike while markets are unstable. Strategists argue sudden change in tone adding to confusion about policy outlook and markets now pricing only ~31% chance of another rate hike this year compared to more than 60% last week. Messaging difficulties compounded by policymaker sensitivity to market instability that might prompt change in BOJ's outlook for economy and prices. Some thought BOJ underestimated extent of volatility following rate hike and will tweak communication that pushes back rate hike expectations. Summary of Opinions showed board members downplayed significance of rate hike in noting policy would still be accommodative. However, there was also emphasis on gradual and careful policy steps with need to monitor market developments.

  • Notable Gainers:

    • +8.8% 6383.JP (Daifuku): reports Q1 results; raises FY guidance

    • +6.8% 6098.JP (Recruit): reports Q1 revenue ¥901.56B vs StreetAccount ¥867.05B, adjusted EBITDA ¥179.06B vs StreetAccount ¥164.38B

    • +5.3% 981.HK (SMIC): reports Q2 revenue $1.90B vs StreetAccount $1.85B; operating income $87.1M vs StreetAccount ($45.3M)

    • +1.6% 4452.JP (Kao): reports H1 revenue ¥787.99B, +7% vs year-ago ¥738.53B, operating income ¥57.94B, +124% vs year-ago ¥25.90B; raises guidance

    • +1.4% 1605.JP (INPEX Corp): reports H1 revenue ¥1.191T vs year-ago ¥1.079T, operating income ¥700.07B vs year-ago ¥607.25B; to conduct on-market buyback of up to 64.0M shares for up to ¥80.00B

    • +0.7% 8035.JP (Tokyo Electron): reports Q1 revenue ¥555.07B vs StreetAccount ¥499.60B, operating income ¥165.73B vs StreetAccount ¥128.28B; raises guidance

  • Notable Decliners:

    • -10.7% 011170.KS (Lotte Chemical): reports Q2 operating profit (KRW111.16B) vs year-ago (KRW69.14B)

    • -6.4% 1347.HK (Hua Hong Semiconductor): reports Q2 revenue $478.5M vs FactSet $488.1M

    • -3.5% 2587.JP (Suntory Beverage & Food): reports H1 results; reports July soft drinks sales volume in Japan (2%) y/y

    • -2.9% 030200.KS (KT): reports Q2 operating profit KRW494.0B vs StreetAccount KRW549.85B

    • -1.3% 941.HK (China Mobile): reports H1 revenue CNY546.74B vs StreetAccount CNY548.10B

    • -0.5% 8802.JP (Mitsubishi Estate): reports Q1 revenue ¥328.24B vs FactSet ¥347.90B

• Data:

  • Economic:

    • China July

      • CPI +0.5% y/y vs consensus +0.3% and +0.2% in prior month

      • PPI (0.8%) y/y vs consensus (0.9%) and (0.8%) in prior month

  • Markets:

    • Nikkei: 193.85 or +0.56% to 35025.00

    • Hang Seng: 198.40 or +1.17% to 17090.23

    • Shanghai Composite: (7.71) or (0.27%) to 2862.19

    • Shenzhen Composite: (10.33) or (0.66%) to 1553.93

    • ASX200: 95.70 or +1.25% to 7777.70

    • KOSPI: 31.70 or +1.24% to 2588.43

    • SENSEX: 826.73 or +1.05% to 79712.95

  • Currencies:

    • $-¥: (0.09) or (0.06%) to 147.1500

    • $-KRW: (10.43) or (0.76%) to 1363.5900

    • A$-$: +0.00 or +0.05% to 0.6595

    • $-INR: (0.07) or (0.09%) to 83.9506

    • $-CNY: (0.00) or (0.05%) to 7.1725