SOUTH KOREA: Market Update Post Election
- The newly elected Lee Jae-myung named economic growth as his top priority, immediately boosting stock market sentiment. The strong market rebound leading up to the election reflects investors' hope after a six-month leadership vacuum.
- The markets since election day however have been mixed as much driven by the positivity built in leading up to the election and eyes on discussions between China and the US, yet positivity still remains
- The KOSPI has gained +4.36% in the time since the election result to be at 2,889.76 today.
- The Won has done little from 1,363 on election day to 1,370 today.
- The 3yr government bond is +1bp in yield whereas the 10yr is lower by -6bps.
- Lee promised a 5,000 target for the KOSPI and the market awaits sign of 'market friendly' policies
- Lee will need to prioritize the Corporate Value UP program. The South Korean Corporate Value-up Program, launched by the Financial Services Commission (FSC) in February 2024, aims to improve corporate governance and market practices to boost shareholder value. It focuses on enhancing transparency, aligning the interests of controlling and minority shareholders, and incentivizing companies to adopt higher governance standards. The program encourages voluntary disclosure and communication of value enhancement plans by listed companies.
- Foreign investors have held long concerns as to corporate governance in Korea. The revision of the Commercial Act 382 is a priority. Article 382 of the South Korean Commercial Act primarily deals with the duty of care and fiduciary duty of corporate directors. Focusing on the duty of loyalty, stating that directors must perform their duties in good faith and for the benefit of the company. Recent discussions and proposed amendments aim to expand this duty to include protecting the interests of shareholders a move that would be welcomed by foreign investors.
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AUSSIE BONDS: US-CH Trade Deal Induced-Risk-On Weighs
ACGBs (YM -6.0 & XM -6.0) are sharply cheaper and at Sydney session lows.
- This move aligns with weaker US tsys, which are trading 2-4bps cheaper in today's Asia-Pac session, as risk bounces on US-China officials citing 'substantial progress' made from weekend trade talks held in Switzerland. US Treasury Secretary Bessent said there had been 'substantial progress' in the two days of talks with China and that further details would be shared today.
- Traders continue to pare back expectations of the Fed easing this year and the next.
- Cash ACGBs are 6bps cheaper with the AU-US 10-year yield differential at -6bps.
- The bills strip is cheaper with pricing -6 across contracts beyond the first (-3).
- RBA-dated OIS pricing is slightly firmer across meetings today. A 50bp rate cut in May is given a 2% probability, with a cumulative 92bps of easing priced by year-end (based on an effective cash rate of 4.09%).
- Today, the local calendar will be empty.
- This week, the AOFM plans to sell A$1200mn of the 3.50% 21 December 2034 bond on Wednesday and A$800mn of the 2.50% 21 May 2030 bond on Friday.
CHINA PRESS: China SME Index Down In April
China’s SME Development Index fell 0.3 points m/m to 89.2 in April, data from the China Association of Small and Medium Enterprises showed. Ma Bin, executive vice president at the association, said officials must implement current policies and introduce incremental reserve policies in a timely manner, as well as ensure all levels of government implement the new private economy law. Macroeconomic perception's fell by 0.9 points while the labour index declined 0.3 points, the data showed.
CHINA PRESS: China-U.S. Trade Talks Make Substantial Progress
China and the U.S. have agreed to establish a formal mechanism for economic and trade negotiations, with further details and a joint statement expected to be released on Monday, according to Xinhua News Agency. The high-level talks, held in Geneva over the weekend, were described as candid, in-depth, and constructive, with significant consensus reached and substantial progress made, Xinhua reported, citing China’s top trade negotiator, He Lifeng.
