Asia-Pacific markets mixed as BHP, Chinese real estate shares soared against weak Japanese trade

Fitch ratings downgrades Country Garden

Fitch ratings has downgraded Chinese homebuilder Country Garden Holdings’ Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs), senior unsecured ratings and the rating on the outstanding bonds to ‘BB+’ from ‘BBB-‘.

“The downgrade reflects a weakening in Country Garden’s financial flexibility due to challenges in China’s property sector,” Fitch said in a note.

“Fitch believes that Country Garden’s liquidity buffer, while adequate, is under pressure as declining sales coupled with working capital commitments put pressure on cash generation, while deterioration in capital market conditions has narrowed the company’s funding sources.”

– Su-Lin Tan

Chinese property stock makes surprise leap after Beijing bond guarantee pledge

Chinese real estate stocks surged unexpectedly after Beijing told state-owned China Bond Insurance Co. Ltd. to provide guarantees for onshore bond issuance by “model private developers”, including Hong Kong-listed Longfor Group.

Even though the Hang Seng index was down 1.73% as major stocks across the bourse — including Tencent, Ping An and Petrochina slumped, there were green shoots among Chinese developers like Longfor.

Longfor shares rose 11% while top developer Country Garden leapt 9%. The rally is also strong across Chine Res Land with a 3.2% rise, R&F Properties up 1.26% and China Vanke, which rose 1.72%.

To revive the beleaguered Chinese (residential) property market, regulators are planning to provide liquidity support to the selected private developers through underwriting new local bonds raised, financial information provider, REDD said.

Jessica Tea, Asia and Greater China Investment specialist at BNP Paribas Asset Management, however, said investors will remain skeptical until they see evidence confirming these private developers benefit from the government’s funding support.

“That said, we believe that the recent mortgage boycott is unlikely to cause any systemic risk, unless the situation spins out of control,” Tea said.

“Crucially, Beijing’s policy response to this problem has been swift, with the authorities trying to sort out some solutions including allowing mortgage payments holiday for the affected homeowners and mobilizing banking, SoE and local government resources to revive the suspended projects and ease funding shortages of developers.”

More expected macroeconomic policy easing should ease the risks the property market could pose to economic growth, Tea added.

– Su-Lin Tan

More growth policies seen as needed for China’s economy despite rate cuts

China still needs more growth policies to stabilize its economy after the central bank moved unexpectedly to cut its key interest rates, the Chinese central-bank backed Financial News said on Tuesday.

The People’s Bank of China lowered the rate on its 1-year policy loans by 10 basis points to 2.75% and the 7-day reverse repo rate to 2% from 2.1% on Monday. It defied economists’ expectations that the central bank would act on rate cuts.

Citing Wen Bin, chief economist of China Minsheng Bank, Financial News said for the economy to recover further, the rate of increase in infrastructure investments needed to accelerate, especially since recovery momentum has slowed down.

Wen also said the weakness in domestic demand was a problem for the economy and Beijing would need to put out policies that would shore up economic growth.

Wang Qing, chief macro analyst at Dongfang Jincheng, was also quoted as saying that Beijing would likely boost fiscal policies and industrial policies to propel recovery.

Luo Huanjie, senior macro researcher at the Zhixin Investment Research Institute, said in light of possible future pandemic outbreaks, Beijing should prioritize the adjustment of macro policies in an effort to further improve the economy.

– Su-Lin Tan

China’s interest rate cuts are a modest first step, says the professor

The People’s Bank of China’s surprise interest rate cuts on borrowing costs for medium-term policy loans are a modest first step, according to Eswar Prasad, senior professor of international trade policy at Cornell University.

“The rate cut that we’ve seen right now is very modest. Ten basis-points doesn’t amount to very much, although it does unleash some liquidity,” he told CNBC’s “Squawk Box Asia” on Tuesday.

The PBOC lowered its one-year medium-term lending facility on 400 billion yuan ($59.3 billion) of loans to some financial institutions by 10 basis points to 2.75%, according to an announcement posted on the central bank’s website. It also cut its seven-day reverse repo rate by 10 basis points to 2%.

“It seems like a very small step. But the PBOC is trying to send a very calibrated signal here that it is ready to step in if circumstances were warranted,” the professor added.

“I think it is very cautious about unleashing any significant monetary stimulus because they know that it’s going to create medium-term financial risks.”

— Sumathi Bala

Australia to look into competition, consumer issues for social media services

The Australia Competition & Consumer Commission said it will look into competition and consumer issues with social media services such as Facebook, Instagram, Twitter, TikTok and Snapchat.

The ACCC said its report will also consider YouTube, Reddit and Discord.

“We hope to examine trends in user preferences and engagement over time, and consider how users choose social media services,” it said in a statement. The body plans to look into “if new entrants such as TikTok have changed the competitive landscape.”

On Friday, China released a list of algorithms driving its tech giants’ success, including that of Alibaba and Tencent. The filing also mentions how Douyin, the Chinese version of TikTok, uses such data to recommend content to users.

Jihye Lee

Gas prices continue to surge up north as Japanese industries lag

Energy prices will continue to move north amid strong consumption, Skylar Capital Management head trader and chief executive Bill Perkins told “Street Signs Asia.”

Surging gas prices have seen the northern hemisphere countries, including Asian ones like Japan scrambling for imports of liquefied natural gas. The Asian benchmark spot price is on an upward trajectory while Japanese industrial stocks are in the red on Tuesday.

“I think that these pull backs with traders taking profit and concerns in China over recession and the real estate conditions over there. They are concerns but they are overblown relative to the macro trends going on in this cycle,” he said.

Perkins said there will be little relent in surging oil prices, and he expects the WPI oil price to move north of $100 a barrel and Brent to push past $120 a barrel.

– Su-Lin Tan

Anglo-Australian miner BHP soars after posting its second-biggest profit in history

Anglo-Australian miner BHP shares soared 3.80% after posting its second-biggest profit in history and a record dividend worth $16.3 billion.

Its full-year results ending June 30 have beaten expectations.

BHP Chief Executive Mike Henry said BHP enters the 2023 financial year “in great shape strategically, operationally and financially.”

He also expects China to “emerge as a source of stability for commodity demand in the year ahead, with policy support progressively taking hold.”

“At the same time, we expect to see a slowdown in advanced economies as monetary policy tightens, as well as ongoing geopolitical uncertainty and inflationary pressures,” he said in a press release.

“The direct and indirect impacts of Europe’s energy crisis are a particular point of concern. Tight labor markets will remain a challenge for global and local supply chains.”

The situation is reversed for peers Rio Tinto and Fortescue Metals which have posted falls.

– Su-Lin Tan

US, Japan and South Korea complete missile search and tracking exercise

The Pentagon said the United States Navy, Japan Maritime Self-Defense Force, and Republic of Korea (ROK) Navy have completed a missile warning and ballistic missile search and tracking exercise off the coast of the Pacific Missile Range Facility (PMRF) in Hawaii.

The US, Japanese, and ROK participants shared tactical data link information in accordance with a trilateral information sharing agreement.

“Following the June 11 US-ROK-Japan Trilateral Ministerial Meeting in Singapore, this missile warning and ballistic missile search and tracking exercise demonstrated the commitment of the US, ROK, and Japan to furthering trilateral cooperation to respond to DPRK challenges, protecting shared security and prosperity, and bolstering the rules-based international order,” the Pentagon said in a note.

– Su-Lin Tan

Chinese fast food operator Yum goes for HK primary listing

Chinese fast food operator Yum China Holdings announced Monday that it has applied for the conversion of its secondary listing to a primary listing status in Hong Kong. It currently has a dual listing on the New York Stock Exchange.

“Since our secondary listing in Hong Kong in 2020, we have enhanced access to our shareholders in Asia. We have diversified our investor base and tapped into additional capital pools,” said Joey Wat, CEO of Yum China, in a press release.

“Dual primary listing would bring us even closer to our employees, customers and other stakeholders. This strategic move would further broaden our shareholder universe, increase liquidity and mitigate the risk of delisting from the NYSE,” he added.

Yum has the exclusive rights to operate fast food brands like KFC, Pizza Hut and Taco Bell brands in China.

– Su-Lin Tan

CNBC Pro: Strategist names global stocks to buy despite slowing growth

There are pockets of “compelling value” in three sectors — even amid an economic slowdown, said Patrick Armstrong, chief investment officer at Plurimi Group.

These sectors are “incredibly cheap,” he told CNBC’s “Squawk Box Europe,” naming his favorite stocks and explaining why he likes them.

Pro subscribers can read the story here.

— Weizhen Tan

CNBC Pro: Tesla’s valuation doesn’t make sense until it hits this level, fund manager says

Tesla may be one of the best-known electric vehicle makers, but fund manager and tech investor Paul Meeks thinks the stock is still too expensive.

Meeks revealed to CNBC Pro Talks the valuation at which he will find Tesla “more interesting.”

Pro subscribers can read the story here.

Xavier Ong

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