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Event specific news also helped boost regional markets. The blockbuster Japan Post initial public offering (IPO) helped drive a rally in Japanese markets as they returned from their holiday yesterday. The Hang Seng and the H-shares index also gained major ground on news of a Shenzhen-Hong Kong stock connect. Although if the Shanghai-Hong Kong stock connect experience is anything to go by, the funds are more likely to flow to Shenzhen rather than the other way around.
The biggest IPO in Japanese history saw Japan Post and its two financial units saw a major jump on their debut. It is a significant moment as the privatisation of Japan Post had been a rallying cry during former Prime Minister Junichiro Koizumi’s reign in the early-2000s. He took the divisive privatisation to an election and won, and it was meant to be just the beginning of greater corporate reforms in Japan. However, after the bitterness of the struggle over Japan Post, Koizumi seemed to lose his zest for the Prime Ministership before actually following through with its listing. With his departure, the game of musical chairs for Japan’s leadership began.
The fact that this IPO has taken place a decade after its electoral mandate was won is a testament to the foot-dragging of productivity reforms in Japan. None of Koizumi’s short-lived successors were ready to risk their position by following through on Koizumi’s divisive privatisation. The fact that it has taken place now shows the strength of current Prime Minister Shinzo Abe – and that he was mentored by Junichiro Koizumi gives this listing a strong symbolic element. Nonetheless, the time it took for it to happen and the hollow reception of Abe’s “Third Arrow” reforms point to the ongoing issues facing Japan’s productivity reforms.
Australian retail sales were in line with expectations, growing 0.4% month-on-month (MoM). Although in the wake of disappointing updates from Aussie consumer focussed companies, the detail of the release did increase nerves around a potentially poor Christmas sales season. Department store sales were down 2.0% MoM, although the large store sub-sample was up 0.6%. Nonetheless, with all of the Big Four banks raising home loan rates and the Reserve Bank of Australia (RBA) leaving rates on hold yesterday, consumers are unlikely to be feeling particularly buoyant as we head into the holiday sales season.
The trade data does seem to support the RBA’s decision to leave rates on hold for the moment. The trade deficit improved more than expected, driven by a bigger than expected increase in exports (+3.4% MoM). The big jump in iron ore exports, up 7.9% MoM, was the primary driver, with stepped up Chinese fiscal investment to support growth and help achieve the 7% GDP growth target clearly driving demand.
The ASX continued to build on yesterday’s solid performance, opening well above the 5200 level. The big gains in oil overnight saw the energy sector as the best performing on the S&P 500 overnight, and helped see a solid performance in the energy sector on the ASX too today.
The strong performance by BHP and RIO on the FTSE overnight also helped see a good performance by the materials sector as well. Materials was the best performing sector on the index, driven by a strong performance by BHP and its big market capitalisation weighting in the sector. Despite another big 1.6% drop in gold overnight, the gold spot price started to turn around in Asian trade. This helped see gold miners come back a bit after some very heavy selling over the past two weeks.
The banks, while not gaining as much as yesterday, managed to trade comfortably in positive territory. The big sell off on Monday certainly lowered the banks’ price to levels that helped entice high-yield seeking investors back to the market.
Consumer stocks also clearly took the retail sales number as good news, with big gains by Metcash (+4.1%) and Dick Smith (+9.3%) helping drive a good performance in the consumer focussed sector as a whole.