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Asia's $1.6 Trillion Stock Rally Is Looking Increasingly Fragile

Eric Lam and Natalie Lung
Asia's $1.6 Trillion Stock Rally Is Looking Increasingly Fragile

(Bloomberg) -- A dose of skepticism about the upcoming trade talks and renewed concern over China’s economic slowdown dealt another blow to Asia’s equity markets.

News that U.S. prosecutors filed criminal charges against Huawei Technologies Co. poured cold water on a region that recovered about $1.6 trillion in equity values since a December low. It also came as U.S. and Chinese officials are scheduled to meet for another round of trade talks this week to resolve a months-long standoff.

On top of that, two U.S. industry bellwethers, Caterpillar Inc. and Nvidia Corp., blamed a slowdown in Chinese demand for disappointing results, and early data suggest the Chinese economy slowed for an eighth month in January.

“You just don’t want to be in this market where there is so much event risk going on,” said Kyle Rodda, an analyst at IG Group in Melbourne. Now traders are waiting for some good news from either the trade-war talks or the Federal Reserve, which will announce its interest-rate decision on Wednesday, he said.

While the MSCI Asia Pacific Index trimmed most of its 0.8 percent loss, the volatility shows how skittish the mood is. Markets from Taiwan to Hong Kong and India were in the red on Tuesday, even as Japan’s Topix index erased a decline of as much as 0.9 percent and China’s CSI 300 Index reversed a 1.1 percent slide after the nation’s securities regulator dismissed a local media report about the introduction of short-selling tools.

The Asian benchmark is still on track for a 5.3 percent gain in January, its biggest monthly advance in a year, but skepticism remains high as traders reminisce about 2018’s strong equity start that went up in smoke.

Tech companies -- among the biggest components of the index -- are under the microscope, and anxiety is growing that the charges alleging that Huawei stole trade secrets from a U.S. rival and committed bank fraud may derail the upcoming trade discussions. The Wednesday and Thursday talks will cover U.S. demands for structural changes to China’s economy and Beijing’s pledge to buy more American goods.

The impact of the disappointing results from Caterpillar and Nvidia was apparent in Asia, where machinery makers such as Japan’s Komatsu Ltd. and Hitachi Construction Machinery Co., and chip-related companies including Advantest Corp. and Tokyo Electron Ltd. fell. Taiwan’s Taiex index was one of the region’s biggest decliners, weighed down by Taiwan Semiconductor Manufacturing Co.

“Machinery and chipmaker giant’s earnings guidance painted a weaker outlook for the peak earnings season ahead,” Margaret Yang, a market analyst with CMC Markets, wrote in a note to clients. “The trade and growth uncertainties surrounding markets over the past few months have started to materialize, and Trump’s radical trade policy has resulted in adverse economic impact to even the American companies.”

Looking ahead, there may be more gloom for investors as Chinese tech titan Alibaba Group Holding Ltd. is set to unveil its earnings Jan. 30. While revenue is expected to have risen 44 percent during the December quarter, that’s the company’s slowest pace of expansion since early 2016, showing even Alibaba can’t escape the widening malaise.

Stock-Market Summary

MSCI Asia Pacific Index down 0.1%Japan’s Topix index little changed; Nikkei 225 little changedHong Kong’s Hang Seng Index down 0.2%; Hang Seng China Enterprises down 0.1%; Shanghai Composite little changed; CSI 300 up 0.3%Taiwan’s Taiex index down 0.8%South Korea’s Kospi index up 0.3%; Kospi 200 up 0.5%Australia’s S&P/ASX 200 down 0.5%; New Zealand’s S&P/NZX 50 down 1.2%India’s S&P BSE Sensex Index down 0.6%; NSE Nifty 50 down 0.5%Singapore’s Straits Times Index down 0.2%; Malaysia’s KLCI down 0.4%; Philippine Stock Exchange Index little changed; Jakarta Composite down 0.4%; Thailand’s SET down 0.3%; Vietnam’s VN Index up 0.4%S&P 500 e-mini futures down 0.3% after index closed down 0.8% in last session

To contact the reporters on this story: Eric Lam in Hong Kong at elam87@bloomberg.net;Natalie Lung in Hong Kong at flung6@bloomberg.net

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

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