It's Not That Bad: December in Asia Stocks Less Ugly Than U.S.

(Bloomberg) -- An air of calm has descended on Asian stock markets.

The regional benchmark index rose a mere 0.3 percent as of 5:04 p.m. in Hong Kong, with markets mixed across the region. To boot, trading volume slumped in the last full trading week of the year. And, news that China and the U.S. held vice-ministerial level talks on Wednesday to discuss the ongoing trade dispute didn’t move the needle much.

After the tumultuous Tuesday where major indexes sank, investors stayed on the sidelines while awaiting the conclusion of the Federal Reserve’s rate decision. Here’s a look at how Asian stocks have done so far this month:

  • The MSCI Asia Pacific Index declined 3.7 percent as of Tuesday, much less than the 7.8 percent plunge in the U.S.
  • While Asia wiped out $563 billion of value this month, that’s only 16 percent of the market cap lost globally. More than $2.2 trillion evaporated from U.S. stocks.
  • In terms of valuations, the gap between Asian and U.S. equities has narrowed significantly from a record earlier this year.
It's Not That Bad: December in Asia Stocks Less Ugly Than U.S.

Why hasn’t it been as ugly as the U.S. carnage? It could be that the region bore the brunt of a sell-off earlier this year as trade tensions intensified, sending several major markets into correction and bear-market territories way ahead of the turmoil stateside. To Margaret Yang Yan, an analyst at CMC Markets Singapore, the downside for Asian equities is likely to be protected by relatively low valuations, according to a note published Tuesday.

In some sense, though, Asian markets have been calmer. Intraday swings in the MSCI Asia Pacific Index have averaged 0.9 percent this year. While that’s higher than 0.6 percent in 2017, it’s less than in 2016 and less than the mean moves of 1.1 percent for the S&P 500, which is on track to post its biggest swings since 2011. That hasn’t gone unnoticed, and Treasury Secretary Steven Mnuchin blamed stock volatility partly on high-speed trading and the effect of the Volcker Rule during a Bloomberg interview Tuesday.

That said, there’s little to rejoice: The MSCI Asia Pacific Index is heading for its worst December since 2000, and hopes for a Santa rally are fizzling.

The Fed

Looking ahead, the Fed’s interest-rate decision remains on top of investors’ mind. While the Fed began a two-day policy meeting Tuesday, U.S. president Donald Trump warned the central bank against making “yet another mistake” in a tweet about raising interest rates.

JPMorgan Asset Management’s Asia chief market strategist, Tai Hui, will be watching the committee’s median forecasts on the policy rate and whether it will have been impacted by recent market volatility. “Given the cautious market sentiment, a slower pace of rate rises could be interpreted as a sign of weakness and put more pressure on risk assets,” he wrote in a note.

Beyond the Fed, some other news to keep in mind:

  • The U.S. and China are planning to hold meetings in January to negotiate a broader truce in their trade war but are unlikely to have any face-to-face contact before then, Mnuchin said.
  • Oil held losses near $46 a barrel after plunging the most in more than three weeks on lingering concerns over a supply glut and trade tensions. Energy shares fell the most among MSCI Asia Pacific Index industry groups.
  • Shares of SoftBank Group Corp.’s domestic telecom business had one of the worst first-day declines ever in Japan after Masayoshi Son raised 2.65 trillion yen ($23.6 billion) in an initial public offering.
  • Japan’s export growth slowed again in November, with shipments eking out a tiny gain, as weakening demand in China and trade-war risks cloud the outlook.

Some Southeast Asian markets rallied in the later part of Wednesday: the Philippine Stock Exchange Index lurched higher near the close of market trading on Wednesday, rising almost 2.2 percent as traders grasped for reasons. Indonesia’s benchmark index surged 1.6 percent as the rupiah strengthened ahead of the central bank rate decision on Thursday. The FTSE Bursa Malaysia KLCI Index closed 1.2 percent higher, snapping a three-day decline. Gains in Chinese property stocks failed to lift the Shanghai Composite Index, which fell for a second day.

Stock-Market Summary

  • Japan’s Topix index down 0.4%; Nikkei 225 down 0.6%
  • Hong Kong’s Hang Seng Index up 0.2%; Hang Seng China Enterprises down 0.3%; Shanghai Composite down 1.1%
  • Taiwan’s Taiex index up 0.7%
  • South Korea’s Kospi index up 0.8%; Kospi 200 up 0.8%
  • Australia’s S&P/ASX 200 down 0.2%; New Zealand’s S&P/NZX 50 up 0.8%
  • India’s S&P BSE Sensex Index up 0.5%; NSE Nifty 50 up 0.6%
  • Singapore’s Straits Times Index up 0.4%; Malaysia’s KLCI up 1.2%; Philippine Stock Exchange up 2.2%; Jakarta Composite up 1.6%; Thailand’s SET up 0.9%; Vietnam’s VN Index down 0.9%

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