China’s boost fades, causing stocks to drift while bonds rally.
Asian Equity Markets Struggle for Direction
By Tom Westbrook
In the world of Asian equity markets, the struggle for direction continues. The initial bounce from Beijing’s efforts to support stocks has started to fade, leaving investors uncertain. Meanwhile, bonds are rallying and the dollar is dipping, all while eagerly awaiting the release of U.S. labor and manufacturing data later this week.
There is a growing expectation that the upcoming data points could disappoint, leading to further uncertainty. As a result, U.S. Treasuries are seeing extended gains, pushing yields down. The dollar is also feeling the pressure, slipping below its 200-day moving average against the euro and showing weakness against other major currencies.
One outlier in the currency market is the yen, which remains near a 10-month low. This has traders on edge, concerned about the potential for intervention. The yen’s current exchange rate is 146.34 per dollar.
Despite the overall uncertainty, there are some positive signs in the equity markets. MSCI’s broadest index of Asia-Pacific shares outside Japan and Japan’s Nikkei both rose by 0.4%.
However, the situation in Hong Kong and China is less optimistic. After an initial strong opening, both markets gave up most of their gains. Commodities also remain unloved. Damian Rooney, a dealer at Argonaut Securities in Perth, explains that measures cutting stock-trading duties do little for the economy.
China recently announced a halving in stock-trading stamp duties and approved guidelines for affordable housing. Despite these efforts, Hong Kong’s Hang Seng closed only slightly higher on Monday and experienced a 1% increase in early trade on Tuesday. Mainland blue chips remained flat, and foreign outflows from the mainland stock market are at a record high for the month.
Even during the market bounce, foreign investors continued to sell Chinese stocks, resulting in a net outflow of $1.1 billion. This trend has persisted in 15 out of the previous 16 sessions, putting downward pressure on the yuan.
The yuan has stabilized at 7.2876 per dollar.
One area of concern is the property sector, which is impacting the overall economy. Shares in China Evergrande, an indebted developer, dropped nearly 80% upon their return from suspension on Monday and fell an additional 6% on Tuesday.
While there are challenges in the market, individual shares offer some brighter spots. Conglomerate 3M saw a 5% jump in its shares after announcing a $6 billion settlement for a lawsuit over its earplugs, which was smaller than expected. Goldman Sachs shares also rose after striking a deal to sell part of its wealth business.
In New Zealand, shares in Tourism Holdings, the world’s largest campervan rental company, surged 13% after reporting a record underlying profit.
In the currency market, sterling, the Australian dollar, and the New Zealand dollar made small gains. Brent crude futures slipped slightly to $84.27 a barrel in the commodities market. U.S. job openings figures are due on Tuesday, followed by broader labor market data and the ISM manufacturing survey on Friday.
Overall, there is anticipation of a potential slowdown in the labor market and a cooling of inflationary pressures.
Additional reporting by Jason Xue in Shanghai. Editing by Sam Holmes
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