It's Been a Stellar Quarter, But Worries Weigh

(Bloomberg) -- Asia markets barely have any time to bask in the glow of the best start to a year since 2017, with investors already pondering where stocks will go from here amid brewing global growth concerns.

The MSCI Asia Pacific Index snapped a two-day slide Friday, on track to wrap up an 8.7 percent rally for the quarter and recovering a big chunk of the losses sustained at the end of 2018. This year’s highlight? China, with the Shanghai Composite Index surging the most among global equity benchmarks.

This week has been a particularly eventful one for the Asia regional benchmark, its most volatile since the second week of January, according to data compiled by Bloomberg. Fallout from the yield curve inversion continues to dominate the conversation, raising the concerns over a coming U.S. recession, while attention is once again turning to American and Chinese trade negotiations as talks continue in Beijing.

“We still think Q2 will be OK, but the risks are definitely going up,” Paul Kitney, chief strategist for Asia Pacific equity research at Daiwa Capital Markets Hong Kong Ltd., said in an interview with Bloomberg Radio. “The inversion in the bond market, the weaker U.S. data, the PMIs in Europe and China are indicating a synchronous decline. The easier credit effect is dominating for the short term, but it won’t last forever.”

These latest uncertainties set the table for more potential volatility as the year progresses, after a quarter in which markets around the world largely moved in a straight line up on optimism over trade and as the Federal Reserve shifted its policy to a more dovish stance.

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Nowhere was that more apparent than in China, with the Shanghai Composite Index surging 24 percent and almost completely erasing its worst annual loss in a decade. The coming quarter may prove more challenging after the relief rally.

Trade talks progressed through the quarter, while Chinese officials also took a step back from their deleveraging project by introducing stimulative measures including tax cuts. MSCI Inc.’s decision to increase the weighting of domestic A shares in its indexes will also continue to be a theme this year as funds shift their assets into the country.

Naturally, the rally has also led to a surge of foreign investment into China. Overseas investors have bought more than 120 billion yuan ($17.9 billion) net of A shares through trading links with Shenzhen and Shanghai. That’s the most since the Shanghai link was launched in 2014, according to data compiled by Bloomberg from daily turnover data.

This is more than the total foreign equity buying for India, South Korea and Taiwan combined, which also topped the rankings for Asian flows. Investors poured almost $15 billion in those markets this quarter, data compiled by Bloomberg show.

Stock-Market Summary

• MSCI Asia Pacific Index up 0.6%
• Japan’s Topix index up 0.6%; Nikkei 225 up 0.8%
• Hong Kong’s Hang Seng Index up 1%; Hang Seng China Enterprises up 0.8%; Shanghai Composite up 3.2%; CSI 300 up 3.9%
• Taiwan’s Taiex index up 1%
• South Korea’s Kospi index up 0.6%; Kospi 200 up 0.5%
• Australia’s S&P/ASX 200 little changed; New Zealand’s S&P/NZX 50 up 0.8%
• India’s S&P BSE Sensex Index up 0.4%; NSE Nifty 50 up 0.4%
• Singapore’s Straits Times Index up 0.2%; Malaysia’s KLCI up 0.1%; Philippine Stock Exchange Index up 0.6%; Jakarta Composite down 0.2%; Thailand’s SET up 0.3%; Vietnam’s VN Index down 0.2%
• S&P 500 e-mini futures little changed after index closed up 0.4% in last session

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