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StreetAccount Summary - Asian Market Recap: Nikkei +0.74%, Hang Seng +1.14%, Shanghai Composite +0.68% as of 04:10 ET

Aug 30 ,2024

• Synopsis:

  • Asian equities ended higher across the region Friday. The Hang Seng led the gainers as developers and internet stocks surged, mainland boards were also strong. Solid gains for Japan, which closed on week- and month-long highs. Australia, South Korea and Taiwan all higher. India stocks up for the 12th successive day and at fresh record highs, and there were more gains for Southeast Asia. European markets opened higher, US futures a few points ahead. Dollar consolidating around overnight levels, yuan strengthening again. Treasuries mixed. Oil futures supported, precious metals notably lower, base metals mixed.

  • Asia equities ending a quiet week and volatile month with solid gains across most major boards as sentiment improved. Hong Kong outperformed as developers responded positively to reports Beijing was considering allowing mortgage refinancing to take place outside its usual January window. Equities also benefited from another strengthening in the yuan, which reached 14-month highs although there are growing question marks over its sustainability. Meanwhile, the PBOC bought CNY400B of 10Y and 15Y bonds on Thursday, seen as prelude to possible sale in bid to combat falling yields.

  • In other macro developments, Tokyo core inflation unexpectedly rose in August, reinforcing expectations BOJ will hike again by year-end. Japan economic activity data slowed with unemployment higher, retail sales growth slowing, and industrial production expanding but by a smaller rate than forecast. Australian retail sales flatlined against expectations for modest growth. Ahead this weekend, China official PMIs forecast to show further weakness in manufacturing and non-manufacturing activity this month.

  • Kobayashi Pharmaceutical (4967.JP) founding family said to be mulling taking the company private. CATL (300750.KS) said its batteries pose no more threat to US national security than a brick. Tencent (700.HK) and Netease (9999.HK) are said to be rethinking their Japan strategy as game rollout stalls. Samsung Electronics (005930.KS) is considering a potential acquisition of Nokia Mobile's Network business, say reports. BHP Group (BHP.AU) is to continue with copper output expansion at its troubled Olympic Dam project. Star Entertainment (SGR.AU) suffers from dysfunctional leadership, questionable ethics and culture and remains unfit to operate its Sydney casino, according to a gaming regulator inquiry. The India government has cleared the merger of Air India and Vistara, pacing the way for a $276M investment by Singapore Airlines (C6L.SP).

• Digest:

  • China considers allowing mortgage refinancing to boost consumerism:

    • Beijing may allow homeowners to refinance up to $5.4T in home mortgages before traditional January window, potentially lowering borrowing costs to boost consumption, Bloomberg reported citing people familiar with the matter. Plan would see homeowners able to renegotiate terms with current lenders, or refinance with alternative bank for first time since GFC era. Sources said not clear whether plan would apply to all homes. Plan could be risk for Beijing as state-run banks could suffer further margin loss however would benefit existing homeowners who have been left out of sizeable mortgage rate cuts offered to new house buyers over past 18 months. Article noted while average mortgage costs are at record low, few households benefit since banks refuse to reprice existing loans until Jan-25 window. Consideration comes as economists turn increasingly negative over China domestic demand prospects, overall economic growth this year; UBS earlier this week warned property market slump would threaten 5% FY growth target for this year (Bloomberg). Hang Seng mainland property index +6.0% Friday.

  • Tokyo core inflation unexpectedly accelerates, Japan retail sales and labor market soften:

    • Tokyo core inflation unexpectedly rose to 2.4% y/y in August from 2.2% in July, highest since March. Electricity price inflation accelerated, albeit influenced by bast year effects. Household durable goods another major contributor. Ex-energy and food inflation climbed to 1.6% from 1.5% against expectations for a fall to 1.4%. Headline inflation increased to 2.6% from 2.2%, well above consensus 2.3%. Inflation broadening beyond goods categories, with services gauge rising to 0.7% from 0.5%. Data keeps alive prospects of another BOJ rate hike this year with economists leaning towards December. Separate data showed industrial production rebounded 2.8% y/y in July following 4.2% contraction in prior month but lower than consensus for a 3.5% increase. METI forecast further 2.2% growth in August before 3.3% contraction in September. Labor market softened with unemployment rate unexpectedly rising to 2.7% in July from 2.5% in June. Consumer spending also remains tepid in early part of Q3 with retail sales growth weakening to 2.6% y/y in July from 3.7% in prior month, also below consensus for a 2.8% increase.

  • Australian retail sales flat as consumers pull back following end of mid-year sale:

    • Australian retail sales were flat in July following June's 0.5% increase, and contrasted with 0.3% growth forecast. Clothing, footwear and personal accessory (-0.5%) and department store spending (-0.4%) recorded the biggest fall last month. Result reflected payback from May and June's higher-than-expected growth that was driven in part by mid-year sales activity. Among other categories, household goods and other retailing unchanged, food retailing rose 0.2% while cafés, restaurants and takeaway services fell 0.2%. Data adds to perceptions of weak consumption and markets still pricing in ~70% chance of rate cut by year-end (though this is down from ~100% probability priced in earlier this month). However, RBA is anticipating recovery in household consumption with disposable incomes seeing lift from tax cuts that went into effect 1-Jul while rising home prices boosting household wealth. Inflation also remains RBA's main focus with Governor Bullock dismissing prospects of rate cut in next six months amid upside risks from sticky services prices.

  • Yen strength risks Japan earnings downgrade with equities increasingly sensitive to FX changes:

    • Yen strength heightening risk of Japanese firms lowering earnings forecasts. Bloomberg noted analysts forecast yen reaching 135-per dollar by end-2024, higher than average 144.77 assumed in most recent BOJ Tankan and stronger than levels assumed by major auto firms. Noted estimates that a ¥1 gain against dollar translates to 0.4-0.6% fall in earnings, leaving less scope for positive earnings surprises. UBS strategists downgraded Japan equities rating to underweight, basing downgrade in part on yen and rates. Forecast yen rising to 130-per dollar by end-2025 as BOJ hikes to 1%. Noted 10% rally in trade-weighted yen historically associated with ~20% fall in EPS, and that recent yen strength has not been reflected in EPS estimates. Morgan Stanley noted dollar-yen forecasts assumed in company earnings forecasts have been tweaked to 145.2 from 144.1 in May. With dollar-yen remaining above fair value, suspects yen assumptions could be revised higher for export-oriented firms. Nomura noted TOPIX index increasingly sensitive to FX movements, highlighting how ¥1 gain translates to 1% decline in TOPIX while ¥1 depreciation corresponds with TOPIX gain of just over 0.5%.

  • Yuan strength may not last as US election nears:

    • Offshore yuan continues to appreciate against dollar with USDCNH reaching lowest since June-2023 (Bloomberg). Yuan strength mostly function of broader weakness in dollar as markets moved to price in rate cuts. While not to same extent as yen, recent yuan appreciation thought to have been exacerbated by unwinding of carry positions. Recent support also attributed to suspected buying by state-owned banks. However, FX strategists argue yuan faces familiar headwinds from weak economic growth and geopolitical tensions as US election nears. Trump tariffs seen as key risk to yuan with Citi maintaining its bullish call on dollar given potential for tariffs to reduce imports and prompt China policymakers to allow further yuan depreciation (Bloomberg). HSBC estimated theoretical ~7% depreciation in CFETS RMB index if Trump wins and imposes 60% tariffs on China exports. Envisaged scenario where dollar rallies more than 7% against yuan if tariffs are accompanied by US economic outperformance that results in shallower Fed easing cycle. However, also noted PBOC may have less appetite to absorb a large depreciation shock with still-wide US-China yield gap heightening capital outflow pressures.

  • Notable Gainers:

    • +7.4% 1336.HK (New China Life Insurance): reports H1 net income attributable CNY11.08B, +11% vs year-ago CNY9.98B

    • +7.3% 2333.HK (Great Wall Motor): reports H1 CAS net income attributable CNY7.08B vs guidance CNY6.50-7.30B and year-ago CNY1.36B

    • +6.8% 4967.JP (Kobayashi Pharmaceutical): founding family rumored to be considering taking Kobayashi Pharmaceutical private through management buyout

    • +2.9% 6503.JP (Mitsubishi Electric): to launch up-to-¥30.0B buyback, to run from 30-Aug to 31-Oct

    • +2.2% 066570.KS (LG Electronics): LG Corp. to buy KRW200B worth of LG Electronics shares

    • +0.8% 1919.HK (COSCO SHIPPING Holdings): reports H1 net income attributable CNY16.87B, +2% vs year-ago CNY16.56B

    • +0.5% C6L.SP (Singapore Airlines): Indian government approves Air India's merger with Vistara

    • +0.4% 005930.KS (Samsung Electronics): reportedly showing interest in potential acquisition of Nokia's Mobile Network business

  • Notable Decliners:

    • -6.2% 165.HK (China Everbright): reports H1 net income attributable (HK$1.28B) vs year-ago HK$312.7M

    • -5.4% 241560.KS (Doosan Bobcat): Doosan Enerbility, Doosan Bobcat decide not to pursue merger

    • -3.3% 1951.HK (Jinxin Fertility Group): reports H1 revenue CNY1.44B vs FactSet CNY1.48B

    • -2.9% 4543.JP (Terumo): seven institutions to conduct secondary offer of 73.2M Terumo shares in overseas market

    • -1.0% 600887.CH (Inner Mongolia Yili Industrial Group): reports H1 revenue CNY59.91B, (9%) vs year-ago CNY66.20B

    • -0.5% 000270.KS (Kia Corp.): reports July global sales 261,334 units vs year-ago 260,696 units

• Data:

  • Economic:

    • Japan

      • August Tokyo core CPI 2.4% y/y vs consensus +2.2% and +2.2% in prior month

        • CPI excl. fresh food & energy +1.6% y/y vs consensus +1.4% and +1.5% in prior month

        • Overall CPI 2.6% y/y vs consensus 2.3% and +2.2% in prior month

      • July retail sales +0.2% m/m vs consensus +0.4% and revised +0.6% in prior month

        • Retail sales +2.6% y/y vs consensus +2.8% and revised +3.7% in prior month

      • July industrial production +2.8% m/m vs consensus +3.5% and (4.2%) in prior month

        • METI survey projections +2.2% in August, (3.3%) in September

      • July unemployment rate 2.7% vs consensus 2.5% and 2.5% in prior month

        • Job offers to applicants ratio 1.24 vs consensus 1.23 vs 1.23 in prior month

    • Australia July

      • Retail sales 0.0% m/m vs consensus +0.3% and +0.5% in June

      • Private sector credit +0.5% m/m vs consensus +0.5% and +0.6% in June

    • New Zealand July

      • Building permits m/m +26.2% versus (17%) in prior month

  • Markets:

    • Nikkei: 285.22 or +0.74% to 38647.75

    • Hang Seng: 202.75 or +1.14% to 17989.07

    • Shanghai Composite: 19.11 or +0.68% to 2842.21

    • Shenzhen Composite: 33.81 or +2.24% to 1544.23

    • ASX200: 46.80 or +0.58% to 8091.90

    • KOSPI: 12.03 or +0.45% to 2674.31

    • SENSEX: 294.68 or +0.36% to 82429.29

  • Currencies:

    • $-¥: (0.12) or (0.08%) to 144.8670

    • $-KRW: (2.16) or (0.16%) to 1332.1900

    • A$-$: +0.00 or +0.18% to 0.6809

    • $-INR: (0.11) or (0.13%) to 83.8509

    • $-CNY: (0.01) or (0.20%) to 7.0841