Asian Markets Grapple With Growth Worries, Weak China Data

Asian markets struggled for direction on Tuesday as they grappled with worries over global growth following weak Chinese data that hit oil prices and commodity-linked currencies.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.1%, recovering from Monday’s losses. It’s gained 5% from the year’s lows but is still down 15% so far this year.

Just as investors were taking heart from a four-week rally in global equities that pushed shares to their highest in more than three months, Monday’s weak Chinese activity data spanning industrial output and retail sales hit sentiment.

Also, US single-family homebuilders’ confidence and New York state factory activity fell in August to their lowest since near the start of the Covid pandemic, a further sign the world’s largest economy is softening as the Federal Reserve raises interest rates.

China Growth Concerns

Chinese stocks failed to hold onto early gains as growth concerns remained after data showed economic activity and credit expansion slowed sharply in July, prompting the central bank to unexpectedly cut interest rates.

The blue-chip CSI 300 index slipped 0.2% after dipping on Monday, while the Shanghai Composite Index gained 0.1%. The Hang Seng index fell 1.1%, while the China Enterprises Index lost 1.3%.

China’s central bank cut key lending rates in a surprise move on Monday as data showed Chinese economic activity and credit expansion slowed sharply in July. Analysts now expect banks to cut the Loan Prime Rate next week.

Most industry sectors slipped. But real estate developers listed in the mainland rose 1.6%, while mainland developers traded in Hong Kong jumped nearly 6%.

Chinese regulators have instructed state-owned China Bond Insurance to provide guarantees for onshore bond issuance by a few private property developers including Longfor Group and CIFI Holdings, sources said. Longfor, CIFI and top developer Country Garden soared between 9% and 13% in Hong Kong.

China’s Covid situation has been worsening over the past week, with the daily local caseload surging to more than 2,000, Nomura said in a note. As of Monday, 22 cities in China were implementing full or partial lockdowns or some kind of district-based control measures, affecting 5.6% of population and 8.8% of GDP, according to a Nomura survey.

Meituan slumped more than 9% in Hong Kong, its biggest daily drop in 5 months.

ALSO SEE: Shares of China Developers Soar on News of Bond Support

Tokyo Flat, Seoul Edges Up

Other Asian equity markets struggled for direction, hampered by worries over global growth following weak China data.

Japan’s Nikkei index closed almost flat on Tuesday, with energy-related stocks and shippers weighing the most, as worries about a slowdown in the US and Chinese economies weakened sentiment.

The Nikkei share average finished 0.01% lower at 28,868.91, snapping a two-day rally that had sent it to the highest level in more than seven months. The broader Topix edged 0.15% lower to 1,981.96.

South Korean shares extended their gaining streak to a third session on Tuesday to end at their highest in more than two months, as gains in heavyweight chipmakers offset the impact from economic slowdown concerns.

The benchmark KOSPI ended up 5.58 points, or 0.22%, at 2,533.52, its highest close since June 10. Leading the market were tech giant Samsung Electronics and peer SK Hynix, up 1.3% and 3.6%, respectively. But less than 50% KOSPI shares advanced of the total 929 that traded.

Australian shares ended higher on Tuesday, as upbeat earnings and record dividend from global miner BHP Group buoyed the mining sub-index, while Reserve Bank of Australia’s cautious rate hike stance also boosted sentiment.

The S&P/ASX 200 index rose 0.6% to 7,105.40, its highest closing level since June 8. The benchmark gained 0.5% on Monday.

India’s Nifty 50 was up 0.6%, while the BSE Sensex was up 0.5%.

Rally Unsustainable: BlackRock

The dollar briefly hit a one-week high as investors piled back into the safe-haven currency, while the Aussie, euro and Chinese yuan buckled.

On Wall Street, major indexes climbed on Monday, reversing earlier session losses. Shares posted four straight weeks of gains amid optimism over a slowdown in US inflation that could temper the pace of Fed rate hikes.

“Stocks are rallying as markets believe inflation is waning and the Fed will slow hikes soon,” BlackRock’s investment strategists said in a report. “We don’t think the rally is sustainable. Why? We see the Fed hiking rates to levels that will stall the economic restart,” the strategists said.

The US economy contracted in the first and second quarters, amplifying an ongoing debate over whether the country is, or will soon be, in recession.

Growth worries were also the dominant theme in Europe. Euro zone government bond yields fell on Monday with investors concerned about possible recession and amid persistent fears of production cuts in Germany due to potential gas rationing.

On Tuesday, the dollar index, which measures the greenback against six major peers, rose as high as 106.62, its strongest since August 8, before last trading little changed at 106.49.

The euro, the most heavily weighted currency in the dollar index, dropped to the weakest since August 5 at $1.0147 before trading little changed at $1.0163.

The Australian and New Zealand dollars were put on the defensive by frail global data.

Brent crudefutures remained under pressure, down 1% at $94.15 a barrel after falling close to their lowest on Monday since before Russia sent troops into Ukraine on February 24. WTI crudefutures shed 0.8% to $88.7 a barrel.