In Dizzying Asia Rally, You're Still Missing Out: Taking Stock

(Bloomberg) -- Another round of U.S.-China trade talks came and went last week without a resolution, and after a dip in acknowledgment Friday, Asia investors have gone right back to buying.

With the U.S. still shuttered overnight thanks to a holiday, the MSCI Asia Pacific Index hovered around at a four-month high as shares in Shanghai stayed in the green after a dazzling 2.7 percent jump on Monday. Trading volume across Japan, South Korea and India was lower than usual Tuesday. U.S. equity-index futures were flat.

Even with an 11 percent rally in Asia from a December low -- a refreshing change of pace after the carnage late last year -- the Asia benchmark still lags behind its peers. The Stoxx Europe 600 Index is just ahead, with a 12 percent gain from its end-of-year low, and both regional gauges trail the S&P 500’s 18 percent upswing.

In Dizzying Asia Rally, You're Still Missing Out: Taking Stock

A more dovish Fed appears to have done the trick for U.S. equities despite some anxiety around the government shutdown earlier. There’s also some optimism to be found in the current earnings season, with about 75 percent of S&P 500 companies that have reported so far posting positive year-over-year profit growth, according to data compiled by Bloomberg.

As Asian shares keep lagging, they’re showing signs of strain, just like their Europe and U.S. peers:

  • The Asian gauge is once again approaching overbought levels, according to the 14-day relative strength index.
  • Its valuation has steadily climbed to almost 13 times estimated profit, near its five-year average, after tumbling to a low in December.
In Dizzying Asia Rally, You're Still Missing Out: Taking Stock

And of course, there’s still U.S.-China trade: negotiators will get right back at it again with the next round of talks set to begin Tuesday in Washington as the March 1 deadline draws closer. President Donald Trump has said he’s considering a 60-day extension to the discussions, which raises the inevitable question of the extent of investors’ optimism -- and patience -- for the two sides to strike a deal.

“Without sounding like a damp squib, there is now a vast amount of ‘optimism’ baked into currency, stock and energy market prices globally and precisely zero concrete detail” on progress in trade talks, said Jeffrey Halley, senior market analyst with Oanda Corp., in Singapore. “The unwind, should no deal be struck, could be very ugly.”

And the earnings season is just ramping up in Hong Kong and China, which may prove to be the catalyst that gives markets in the region more concrete direction on sentiment. HSBC Holdings Plc reported Tuesday a drop in adjusted pretax profit to $3.39 billion for the final quarter of 2018, missing the $4.4 billion average estimate compiled by the bank. While adjusted revenue rose, it also fell short of projections.

HSBC shares dropped more than 3 percent, the most since Dec. 6, dragging Hong Kong’s Hang Seng Index into the red in the afternoon.

Stock-Market Summary

  • MSCI Asia Pacific Index little changed
  • Japan’s Topix index up 0.3%; Nikkei 225 little changed
  • Hong Kong’s Hang Seng Index down 0.4%; Hang Seng China Enterprises down 0.3%; Shanghai Composite little changed; CSI 300 down 0.2%
  • Taiwan’s Taiex index little changed
  • South Korea’s Kospi index down 0.2%; Kospi 200 down 0.3%
  • Australia’s S&P/ASX 200 up 0.3%; New Zealand’s S&P/NZX 50 down 0.2%
  • India’s S&P BSE Sensex Index up 0.5%; NSE Nifty 50 up 0.5%
  • Singapore’s Straits Times Index little changed; Malaysia’s KLCI up 1%; Philippine Stock Exchange Index down 1%; Jakarta Composite little changed; Vietnam’s VN Index up 0.3%. Thailand is closed for a holiday.
  • S&P 500 e-mini futures little changed after index closed up 1.1% in last session

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