By Laura He and Michael Kitchen, MarketWatch
HONG KONG (MarketWatch) -- Asia stocks came under pressure on
Monday after HSBC released a disappointing final reading on China's
manufacturing activity in April, adding to concerns of a slowdown
in the world's second-largest economy.
Hong Kong's Hang Seng Index settled 1.3% lower, and both the
Shanghai Composite Index and Australia's S&P/ASX 200 inched up
0.1% at the close.
Markets in Japan and South Korea were closed for the Children's
Day holiday.
Among the major movers, leading Chinese property developer
Evergrande Real Estate Group fell 2.3% in Hong Kong, rival China
Overseas Land & Investment declined 1.7%, online major Tencent
Holdingshk:700 (TCEHY) lost 0.6%, and telecom giant China Mobile
dropped 0.4%. (CHL)
In Shanghai, property stocks suffered even more, as China Vanke
Co. and Poly Real Estate Group tumbled 3.8% and 3.4% respectively.
Construction shares advanced, with China Railway Group popping up
3.6%, and China Railway Construction Corp. gaining 2.3%.
In Australia, losses in banks were offset by gains in mining
shares. Westpac Banking Corp. (WBK) gave up 1.2%, and Australia and
New Zealand Banking Group (ANZBY) pulled back 1.1%, while Newcreast
Mining(NCMGY) shot up 3.6% and Alumina tacked on 2.6%.
China manufacturing data still ugly
Ah, bitter disappointment.
HSBC has released the final read of its monthly Chinese
manufacturing gauge, with the result weak enough when compared to
the preliminary data to pull down stock markets in China.
The HSBC Purchasing Managers' Index (PMI) for April printed at
48.1, weaker than the initial or "flash" reading of 48.3, though
still just above the 48.0 result in March. Either way, the result
remained below the 50 level that divides expansion from
contraction.
"Both the new export orders and employment sub-indices
contracted, and were revised down from the earlier flash readings.
These indicate that the manufacturing sector, and the broader
economy as a whole, continues to lose momentum," wrote HSBC chief
China economist Hongbin Qu in remarks released along with the PMI
report.
Among the few bright spots, the output and new-orders components
of the report fell at a slower pace than in March.
Kim Eng Securities strategist Andrew Sullivan summarized the
problem: "The questions now is, which way is the trend?"
Last week, China's official Purchasing Managers Index PMI
reading showed a second successive pick-up in April, rising to 50.4
from 50.3 in March, more or less in line with market
expectations.
But HSBC's China PMI focuses on the small and medium-sized
enterprises, while the official data focuses on state-owned
enterprises. So, Sullivan said, HSBC's disappointing reading may
only reflect that the SME's are suffering, while the SOE's are
stabilizing.
Nonetheless, he said, the weak data from HSBC might prompt some
more stimulus from the government over the coming months.
TD Securities strategist Annette Beacher didn't seem too worried
about the data, maintaining a forecast for China's GDP to grow 7.5%
during the current June quarter.
Despite the disappointing result, she wrote, there might not be
any howls of "Chinese hard landing" as it seems clear that HSBC PMI
readings of between 48 and 50 are consistent with GDP growth of
7.25% to 7.5%, bang on the government's target for this year of
about 7.5%.
'Alarming jump' in Australian inflation
While Australia's statistics bureau reports inflation on a
quarterly basis, the people at TD Securities aren't content to wait
so long. So they issue a monthly inflation gauge.
And this month, the result was "an alarming jump in headline and
trimmed mean inflation, of which only a portion can be attributed
to seasonality," according to Beacher, the firm's head of
Asia-Pacific research.
While many economists have penciled in no change this year to
the Reserve Bank of Australia's policy interest rate (currently at
2.5%), Beacher and her colleagues believe the rate will be a
half-point higher by the time 2014 ends.
"This unwanted inflation, combined with a robust housing sector
and signs that prior savings are refueling consumption, suggests
that the case for holding the cash rate at record low levels is no
longer there," she writes.
The Australian dollar saw a brief, sharp bump up after the TD
Securities data (see the previous post on this blog, when the
Aussie (AUDUSD) was buying 92.86 U.S. cents). However, the gain for
the currency proved transitory, quickly moving back to 92.75 U.S.
cents, around the level just prior to the data release.
Japan closed, but ... hey, Softbank!
As the East Asia spring holiday season enters the home stretch,
Japan and South Korea are marking Children's Day, a festival meant
to celebrate children and, in Japan at least, to fly colorful kites
with pictures of carp on them.
But no amount of fish-bedecked kites can stop the news, and if
Tokyo were open today, we'd for sure be watching shares of Softbank
. This, as the Nikkei newspaper says the telecom is expected to
report a sharp rise in profit in its annual results due out
Wednesday, "driven by its aggressive buying spree."
According the English-language version of the report: "This
would mark an 80% jump from fiscal 2012, although based on
different accounting standards." And significantly, it would give
Softbank (owner of Sprint, among others) the title of Japan's top
wireless carrier, surpassing current industry leader NTT DoCoMo
(DCM) .
While Japanese markets aren't scheduled to reopen until
Wednesday (tomorrow is "Greenery Day"), and while a lot can happen
between now and then, Softbank's American Depositary Shares will
trade in the U.S. For reference, Softbank's SFTBY shares (SFTBY)
closed Friday at $38.35, a gain of 1.2%, while the SFTBF shares
(9984.TO) rose 1.5% to $76.69. Whether they will rise on the news
or induce profit-taking is for you to decide.
Also getting the Nikkei treatment is Japan's top
department-store operator Isetan Mitsukoshi , though here the
benefit to the shares is less clear. The Nikkei writes that
Mitsukoshi should report a "fresh record-high group operating
profit for the third year in a row," but the gain is just 3%, and
group sales are projected to slip by 2%.
(This article is based in part on material from MarketWatch's
Asia Stocks blog.)
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