The rise, fall and rise of Asian markets

Dec 12, 2018
Easing of US-China trade tensions sees markets bounce back

Ten days is a long time in the life of Asian capital markets: at the start of last week the news was positive with the decline in US-China trade tensions, but later in the week those tensions rose once more, creating a downbeat picture. And now things have bounced back once again.

On December 3, optimism reigned as a US-China trade truce offered market hope. Just a few days later, however, the seeming breakdown of that arrangement resulted in market falls and a great deal of uncertainty. This was set to worsen after Chinese economic data released over the weekend signaled a further weakening of both domestic and international demand in November.

Tensions then increased after the arrest of Huawei Technologies CFO Meng Wanzhou, with China’s vice foreign minister summoning the US ambassador to China in protest over her capture on Saturday.

Keeping with this negative trend, by the start of this week Asia’s benchmark MSCI Asia Pacific Index had obliterated November’s 2.7 percent climb and was heading downwards to its lowest level since end-October. The worst performers in the region were Australia and Japan, whose economy shrank by 2.5 percent – and more than forecast – while China’s stocks dropped, with the offshore yuan weakening for a fourth day in a row.

Then mid-week it all shifted again. Reports emerged in the US that China was moving to cut import tariffs on cars made in the US from 40 percent to 15 percent and news that Meng had been granted bail by Canada created a more positive sentiment.

‘On 12 December, there were two positive developments on trade. First: China will cut US automobile import tariffs. Second: Meng got bail, which makes the ongoing trade talks between China and the US less complicated,’ wrote Iris Pang, Greater China economist at ING, in a note.

Greater China markets were particularly positive on these developments, with upward moves on Shanghai’s SSE Composite Index and Shenzhen’s SZSE Component Index by the end of Wednesday, and further gains on the Hang Seng Index in Hong Kong.

But what of more long-term trends in the region? Nomura says there is reason to be cautious on China. ‘We believe the markets are putting too much hope on the speed, scale, scope and efficiency of Beijing’s stimulus measures, and that they may be unprepared for a significantly worse slowdown in the second quarter [of 2019],’ the Japanese investment bank says in a statement. ‘Like those who were overly bearish on China several years ago, we caution that those who are overly bullish may be proven similarly mistaken.’

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