Asian Market Review – Monday, August 16th 2010

GDP Slowdown Hit Japanese Shares

Nikkei 225 Average slipped 56.79 points to end at 9,196.67 on Monday after the government announced that real GDP slowed in 2Q to 0.4%, missing the consensus of a 2.3% growth. Nominally, the economy contracted 0.9% from prior quarter, but at 3.7% against prior year. Japan’s nominal GDP of $1.288 trillion is now below China’s $1.337 trillion. Simply, China turned into the world’s 2nd largest economy, overtaking the spot from Japan. The Jan-Mar quarter GDP was revised to 4.4%.

The biggest contributor to GDP, consumer spending was unchanged in 2Q, while prior quarter’s data was revised to 0.5%. Exports, the key pillar of Japan’s economy contributed 0.3 points, slipping from 0.6 points in the first quarter. Domestic demand was negative as it contributed to -0.2 percentage point to the GDP, but corporate capital investment was up 0.5%.

GDP slowdown came in amid the rising yen, making the issue more difficult. Recently, yen was at 84.72 against the greenback, the lowest since 1995. Eisuke Sakakibara, former top financial figure in Japan said that yen may still rise to a record against the dollar because what has been happening recently was the weakening of the dollar due to the gloomy prospect of US economy, not the improvement in the Japanese economy. Naoto Kan and Bank of Japan’s governor may meet this week to discuss the recent strengthening of yen.

Mitsubishi Estate gained 2.46%, Nippon Steel edged up 0.35%, while Sumitomo Metal stayed flat. Losers were TDK Corp (-3.09%), Sony Corp. (-2.99%), and Advantest (-2.16%).

Properties Pummeled In Hong Kong

Hang Seng Index eked 40.55 points of gains on Monday, after the index settled at 21,112.12 or up 0.2%. China Mobile came to the rescue as investors buying its shares again after some profit-taking last Friday, helping paring heavy losses incurred by property stocks. In Shanghai, SSE was up 55.01 points or 2.11% to end at 2,661.71.

China Mobile ended up 1.27% to end at HK$83.60 as investors were enthusiastic ahead of the company’s earnings announcement on next Thursday. The company is expected to post 1H10 net profit of 56.29 billion yuan, up from 55.30 billion yuan last year.

Property stocks were hurt by further news on Friday from the government restricting sales contracts on new condos being flipped before the properties are delivered. Home mortgage was also limited to 60% of the value of properties worth at least HK$12 million, lowered from the previous rule of HK$20 million. Hong Kong Monetary Authority also ordered banks to conduct stress test mortgage applications on the scenario of a 200 basis points of increase in interest rates. Sino Land and New World Development fell 5.4% and 4.75%, respectively, while Sun Hung Kai ended at HK$110, or 4.1% lower than Friday. Other property stocks like Henderson Land (-3%), Cheung Kong Holdings (-2.26%), Wharf Holdings (-1.76%), Hang Lung Properties (-0.88%), and China Overseas (-0.24%) were all lower following the new policy from the government.

Upgrades and Downgrades

• RBS kept China Life at BUY with target set at HK$39.10.
• Goldman Sachs held SELL rating on PetroChina, while maintaining Sinopec at NEUTRAL.
• Standard Chartered put Sinopec at OUTPERFORM with target at HK$8.
• Henderson Land target cut from HK$58 to HK$54 by JPM, JPM also lowered Sino Land’s target from HK$17 to HK$15.50, New World Development from HK$19.80 to HK$15.50, and Sun Hung Kai to HK$126 from HK$140.

Wrapping up the top, Foxconn International gained 3.15%, Bank of Communications was up 2.25%, while Bank of East Asia was 1.97% higher.