With Trade News on Tap, Asia Stock Bulls & Bears Bide Their Time

(Bloomberg) -- Calm isn’t a word that has been used often in the last year to describe stock markets. But on occasion, there’s been an air of tranquility. Tuesday was one of those days.

Markets across Asia appeared to be caught in a bit of a holding pattern, bidding modestly lower following an overnight gain in New York as investors awaited the outcome of the latest round of trade talks between the U.S. and China.

Case in point: The MSCI Asia Pacific Index slipped 0.1 percent as of 4:57 p.m. in Hong Kong, with no major benchmark posting big moves. Hong Kong, Japan and Australia were up, while Shanghai, Taiwan and South Korea edged lower. Chipmakers took a hit after Samsung Electronics Co.’s latest quarterly profit and sales missed estimates.

Even volume across the region canceled each other out -- that on the Topix index was lower, together with Taiwan, India and Australia, while trading increased in Hong Kong and China, according to data compiled by Bloomberg.

“While we don’t expect a full resolution in trade tension between China and the U.S. in the foreseeable future, small steps in progress are likely to be taken favorably by investors,” Tai Hui, the chief market strategist for Asia Pacific at JPMorgan Asset Management, wrote in a note to clients. “Better clarity in this trade relationship, along with stimulus from Beijing and a softer U.S. dollar are key ingredients to energize investors to take advantage of undemanding valuations in Asian equities.”

With China stocks trading at some of their cheapest valuations since 2014, slightly more dovish comments from Federal Reserve Chairman Jerome Powell and a reserve-ratio cut from the People’s Bank of China last week, a positive signal on trade would be the final ingredient in this particular recipe for a stocks rally.

Been Burnt Before

Of course traders have been burnt at least once already getting ahead of themselves recently, so a bit more caution this time around is understandable.

Global markets surged Dec. 3 after President Donald Trump claimed to have struck a trade deal with China following a dinner with Xi Jinping, before giving back all of those gains and some more in the following days as more details emerged on the talks.

“The risk at the moment, given recent rallies in the market, probably lies with the downside and any disappointment could result in sharp reversals,” said Nick Twidale, chief operating officer at Rakuten Securities Australia in Sydney. “Given the history of these negotiations, traders will remain wary until we get concrete evidence of a deal before fully committing to growth positions.”

Stephen Innes, head of trading for Asia Pacific at Oanda Corp., has shifted some of his portfolio weightings while maintaining similar levels of overall risk. He added commodity-currency exposure in the Australian and Canadian dollars while unwinding some gold hedges.

“If we get a roadmap to trade resolution, I would expect equity market and commodity currencies to flourish along with emerging-market Asia FX,” he said. Innes is long the Aussie dollar against the yen and long the loonie, the Korean won and offshore yuan against the dollar, he said.

While China’s economy and stock market have certainly suffered through this standoff, Trump is dealing with domestic pressures of his own to “do a deal” amid the government shutdown, December sell-off and ongoing investigations into Russian collusion, said Ross Cameron, head of Northcape Capital Ltd.’s Japan office in Tokyo.

Odds Rise for ‘Shallow’ Deal

The odds of a “shallow” deal between the two nations has gone up, but the “structural tension between the two countries is highly unlikely to be resolved by the March deadline,” Cameron said.

“More important is the government’s continued efforts to rein in the corporate-credit bubble,” he said. “As such we expect any relief rally in Chinese assets on the announcement of a ‘deal’ to be short-lived.”

Stock-Market Summary

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

--With assistance from Abhishek Vishnoi and Fox Hu.

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

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