The Pessimist's Take on Asia's Biggest Markets: Taking Stock

(Bloomberg) -- It’s a jittery, sideways trading day for equities across Asia amid yet another bump in the road in ongoing trade talks.

The MSCI Asia Pacific Index lost as much as 0.5 percent, halting a modest three-day winning streak. U.S. negotiators are worried China is pushing back against American demands in the trade talks, according to people familiar with the discussions. Chinese officials meanwhile appear to be concerned they haven’t received assurances from the U.S. that tariffs imposed on exports will be lifted.

But at the risk of sounding like Disney’s gloomy donkey Eeyore, the eternally pessimistic friend of Winnie-the-Pooh, there’s plenty of local problems to worry about after a hot start to the year.

Let’s start in Hong Kong, where the local dollar has emerged as one of the losers amid the screaming rally in Chinese stocks this year.

Investors are selling the currency for the yuan and buying mainland shares, according to strategists at Bank of America Merrill Lynch. As of Monday, net northbound fund flows had already climbed to around 130 billion yuan ($19 billion) for the year. And since the end of December, the CSI 300 Index has rallied about twice as much as Hong Kong’s Hang Seng Index.

As a result, the city’s monetary authority has now spent some HK$8 billion ($1 billion) this month defending its currency peg, with the local dollar stuck near the weak end of its trading band against the greenback. Hong Kong’s economy has sputtered as key drivers including real estate, trade and retail consumption took hits in the past year. A muted budget unveiled in February warned there will be more turbulence ahead.

Over in South Korea, Samsung Electronics Co. sounded the growth alarm Wednesday. Vice Chairman Kim Ki-nam said the company expects a “difficult” year for its component business amid an increasingly uncertain operating environment. The slowing smartphone market and reduced investment by data centers will also hamper growth.

The benchmark Kospi Index retreated as much as 1.2 percent, dragged lower by the tech giant, before ending the day little changed.

Singapore’s Straits Times Index meanwhile is the worst-performing equity gauge among developed markets this year, lagging peers with a disappointing 4.5 percent gain. That’s well behind Italy’s world-beating 17 percent advance.

While February non-oil exports surprised Monday with a 4.9 percent year-over-year rebound to snap three months of declines, much of that gain came from a surge in non-monetary gold. Excluding the metal, February exports would have declined 4 percent, according to Mohamed Faiz Nagutha, an economist with Bank of America Merrill Lynch.

Investors are also souring on Japanese equities amid a deteriorating profit outlook, according to the latest Bank of America Merrill Lynch fund manager survey.

“This is likely attributable to weak domestic data and heightened uncertainty in exports as investors remain alert about downside risk in China,” strategists Shusuke Yamada and Tony Lin said in the March 19 report.

The proportion of fund managers saying they are overweight Japan slipped to a net 3 percent from 10 percent a month ago. And more investors now say they plan to underweight the market than overweight it over the next 12 months, the survey showed.

There is an upside: Given Japan’s equity lag this year, a near-term “catch-up rally similar to the one in September 2018 is a possibility,” the strategists said. Although “Deteriorating fundamentals should be noted.”

Stock-Market Summary

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

To contact the reporter on this story: Eric Lam in Hong Kong at elam87@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Divya Balji, Cecile Vannucci

©2019 Bloomberg L.P.