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StreetAccount Summary - Asian Market Recap: Nikkei +0.47%, Hang Seng +0.43%, Shanghai Composite (0.24%) as of 04:10 ET

Aug 27 ,2024

• Synopsis:

  • Asian equities ended mixed Tuesday in a quiet day's trading. Japan's Nikkei and Topix closed higher to follow a lower open, the Hang Seng followed a similar pattern despite pressure on consumer stocks, while India's main boards are trading higher also after a shaky start. But elsewhere, benchmarks fell with mainland China boards underperforming. US futures edging higher, Europe building momentum. US dollar flat, yen weaker, AUD and NZD stronger. Treasury yields higher across tenors, JGBS mixed, CGB yields edged higher. Crude lower, gold coming off record highs, base metals mixed as copper remains at five-week highs.

  • Asia stocks in a rather directionless day with no board returning a gain or loss of any note. Investors on edge ahead of Nvidia earnings Wednesday with the Nasdaq losing ground overnight, weighing on Asia tech shares first thing Tuesday. However, many rallied back toward the flatline or beyond as US futures picked up and oil prices fell on an easing of tensions in the Middle East.

  • The Hang Seng ended slightly higher despite a notable underperformance in China consumer stocks following PDD's warning overnight. Today, China industrial profit growth reached its highest since February, reflecting outsized contribution from high-tech manufacturing. Elsewhere, Japan services PPI inflation slowed by more than expected in July while prior month's print was revised higher, Thailand exports surged more than 15% y/y.

  • PDD (PDD) warned on revenue growth and said company's current trajectory was not sustainable causing a sharp share-price correction in New York. LG Electronics (066570.KS) is considering an IPO of its India unit to boost its consumer electronics segment. UOB (U11.SP) launched an unconditional $0.36 per share offer for Silverlake Axis. BHP (BHP.AU) said its revenue rose just 3% and profits fell 39% in FY results and warned of 'uneven recovery' for China demand. Woodside Energy (WDS.AU) said it had received interest for its stake in LNG exporter Driftwood it will sell when it completes the purchase of Tellurian (TELL); reported better-than-expected dividend despite lower profits.

• Digest:

  • Chinese e-commerce firms face challenges amid weak economy and intense competition:

    • Bloomberg reported prospects for Chinese consumer companies are getting increasingly challenging after Temu's owner PDD Holdings (PDD) warned its revenue growth will slow amid heightened competition. Alibaba (9988.HK) and JD.com (9618.HK) both dropped 4% on Tuesday; came after PDD Holdings plunged 29% overnight, worst single-day loss since its IPO in 2018 and wiped out nearly $55B in market capitalization. Co-founder Chen Lei stressed current trajectory wasn't sustainable when ByteDance and Alibaba both vying for budget-conscious shoppers. Article said it reinforced concerns fueled earlier by Alibaba's lackluster revenue growth after its Chinese commerce business shrank for first time in at least a year. Citing analysts' views that PDD's miss signals growing headwinds in China's e-commerce sector, which is grappling with sluggish economy. Companies have to fight for domestic share in saturated market. In addition, PDD's Temu business is also attracting more regulatory scrutiny in its global expansion.

  • China's industrial profits in July grow at fastest pace in five months:

    • Industrial profits rose 4.1% y/y in July, following 3.6% rise in the previous month and were fastest pace since February, taking YTD growth to 3.6% from 3.5%. NBS noted steady growth in top-line revenue, which grew 2.9% YTD and was same pace in Jan-Jun amid recovery of market demand and improvement in linkage between production and sales. Highlighted profit growth in high-tech manufacturing, which grew 12.8% YTD, contributing 2.1 ppt or nearly 60% to the broad growth. Lithium-ion battery manufacturing, semiconductor equipment manufacturing and smart consumer device manufacturing were singled out. Equipment manufacturing seen another pillar with its share rising to 35.1% of aggregate profits, 0.8 ppt higher than a year ago. Consumer goods manufacturers maintained double-digit profit growth with 11 out of 13 major sub-groups contributing positively, reflecting recovery in domestic consumer demand and export growth. Meanwhile NBS pointed to still-weak domestic demand and complex external environment, adding foundation of industrial profit recovery needs to be consolidated.

  • BOJ underlying inflation measures, services PPI soften:

    • BOJ underlying inflation data showed trimmed mean rose 1.8% y/y in July, easing from 2.1% in the previous month. Matches the lowest since April, which was in turn the softest since Jul-22. Similarly, weighted median decelerated to 1.1% from 1.4% while mode inflation edged down to 1.5% from 1.6%. Share of rising items DI fell to 56.9% from 62.6%, the lowest since Sep-22. Separately, services PPI inflation also pulled back to 2.8% y/y vs consensus 2.9% and revised 3.1% in June. Results were generally consistent with official CPI figures, where ex-fresh food & energy inflation printed below 2% for the first time since Sep-22. This contrasted with an uptick in core inflation which largely reflected the expiry of energy subsidies. However, a scheduled reinstatement of these measures from August to October are generally expected to reapply downward pressure. Overall policy implications apparently limited as attention on individual inflation data points has lessened lately. BOJ has said economic and price developments remain on track with their forecasts. Press have noted thoughts in the market the July rate hike was primarily a response to yen weakness, particularly after some hawkish remarks from senior government/LDP officials.

  • Early winners from Fed rate cut expectations:

    • Nikkei discussed how Fed rate cut expectations are encouraging flows into EM assets, REITs and gold, while Japan equities tested by yen strength. EM support amplified by recovery in risk appetite as a softer dollar provides room for regional rate cuts. Noted MSCI Emerging Asia currency index on Monday rose to the highest in one-and-a-half years. Lower rates lifting gold, which already logged successive record levels last week, as well as REITs. Cited Invesco Asset Management analysis that equities typically outperform bonds and commodities in the first 12 months from the start of a rate cut cycle. Prospects for a rebound in tech stocks dependent on cyclical momentum. Goldman Sachs in a recent note lowered the estimated probability of a US recession within the coming year to 20% from 25% and flagged another cut to 15% if August US payrolls are strong. In contrast, Japan equities were weighed down by yen strength Monday amid notable declines in export sectors. But in terms of relative value, Nikkei noted Topix Growth 250 rallied in contrast to declines in the broader benchmarks. Added encouragement from a US rotation out of Big Tech towards broader growth stocks that contributed to sharp gains in the Russell index Friday.

  • China's dividend paying stocks continue to outperform:

    • Hunt for yield continues to drive outperformance of China dividend paying stocks with CSI Dividend index up 5% so far in August compared to CSI 300's 4% drop. China Securities Journal noted of the almost 900 Shanghai-listed companies that have reported half-year results, more than 150 announced interim dividends compared to 76 companies a year ago. Underlines how more Chinese companies favoring capital return initiatives this reporting season following State Council's publication of 'Nine Point Guideline' in April, which included aim to boost dividends and flagged punishment of firms that paid out less than 30% of their profits (Bloomberg). UBS highlighted support for high yield investing strategy as relentless rally in China government bonds enhances allure of high yielding alternatives - A-share dividend yield of ~2.60% above 10Y CGB yield of 2.17%. UBS added positioning not yet crowded with proportion of mutual funds in high dividend yield stocks 6-8% below historical peak. China's market reform push seen providing scope for firms to boost dividends further with UBS noting Chinese companies' payout ratios of ~30% still well below European companies paying out close to 50%.

  • Notable Gainers:

    • +23.3% 5CP.SP (Silverlake Axis): United Overseas Bank launches unconditional offer to acquire Silverlake Axis for SG$0.36/share in cash

    • +10.3% 2327.JP (NS Solutions): holder 3D Investment Partners discloses 5.00% stake

    • +9.5% 9961.HK (Trip.com Group): reports Q2 non-GAAP EPADS CNY7.25 vs year-ago CNY5.11

    • +9.0% 135.HK (Kunlun Energy): reports H1 net income attributable CNY3.31B vs FactSet CNY3.19B

    • +4.5% 857.HK (PetroChina): reports H1 net income attributable CNY88.61B, +4% vs year-ago CNY85.27B; acquires CNPC Electric Energy from controlling shareholder CNPC for CNY5.98B

    • +3.8% 000150.KS (Doosan): FSA requests Doosan Robotics to again revise securities report for merger of Doosan Bobcat

    • +3.1% 096770.KS (SK Innovation): confirms shareholders' approval for merger with SK E&S at EGM

    • +1.2% BHP.AU (BHP Group): reports FY EPS $2.70 vs FactSet $2.70

  • Notable Decliners:

    • -26.8% 743.HK (Asia Cement (China) Holdings): Asia Cement Corp's scheme to privatize Asia Cement (China) Holdings not approved at court meeting

    • -1.8% 6967.JP (Shinko Electric Industries): JIP-led consortium expects to commence tender offer in late January 2025

• Data:

  • Economic:

    • Japan July

      • Services PPI +2.8% y/y vs consensus +2.9% and revised +3.1% in prior month

  • Markets:

    • Nikkei: 178.40 or +0.47% to 38288.62

    • Hang Seng: 75.94 or +0.43% to 17874.67

    • Shanghai Composite: (6.79) or (0.24%) to 2848.73

    • Shenzhen Composite: (19.07) or (1.26%) to 1493.43

    • ASX200: (13.30) or (0.16%) to 8071.20

    • KOSPI: (8.76) or (0.32%) to 2689.25

    • SENSEX: 157.82 or +0.19% to 81855.93

  • Currencies:

    • $-¥: +0.41 or +0.28% to 144.9700

    • $-KRW: +3.84 or +0.29% to 1332.2500

    • A$-$: (0.00) or (0.01%) to 0.6772

    • $-INR: +0.07 or +0.08% to 83.9381

    • $-CNY: +0.01 or +0.13% to 7.1308