By Chao Deng and Fiona Law
Japanese and Australian stocks both rise
Bonds and stocks across Asia rebounded Friday following a bout
of global turmoil, although a bruising three-day selloff left
Chinese stocks with their biggest weekly loss in five years.
The benchmark Shanghai Composite Index though up 2.3% for the
day, lost 5.3% for the week, its worst performance since May 2010.
Most other stock markets in the region also crept higher to claw
back some of the losses from earlier in the week.
Asia's markets have been caught up in the wild fluctuations
around the world. Some of the biggest action has been in Germany,
where government debt suffered a sudden and sharp selloff this week
before recovering in late trading yesterday. But Asia's economic
fundamentals are intact, most investors say, despite slowing
economies across the region.
Japan's Nikkei Stock Average finished up 0.5% at 19,379.19, as
some of the country's biggest companies reported improved profits.
Game maker Nintendo's shares surged more than 7% after the company
released better-than-expected results, including its first annual
operating profit in four years.
The Hang Seng Index finished up 1.1% at 27,577.34, as investors
shrugged off Friday data showing that China's exports fell
unexpectedly
(http://www.marketwatch.com/story/china-exports-unexpectedly-fall-in-april-2015-05-07)
in April, the latest sign of headwinds for the domestic
economy.
Among the region's bond markets, Australia's ranked as the
biggest gainer; the yield on its 10-year Treasury fell 0.14
percentage point to 2.85%, after hitting a five-month high
Thursday. Bond yield moves inversely to the price.
Elsewhere, the yield on the benchmark 10-year Korean government
bond also fell a tad, to 2.44% from 2.55% Thursday, while the yield
on Thai government bonds softened nearly 0.1 percentage point.
Bonds were helped by gains in U.S. Treasurys overnight.
Asian currencies were mixed ahead of a U.S. jobs report due
later Friday. A stronger employment reading would signal further
improvement in the economy, a potential positive for the U.S.
dollar.
"The jobs data was so weak last time, so people are expecting a
rebound this time round, which means the Fed will be on path for
rate hike," said Khoon Goh, Asia senior FX strategist at ANZ
Research. The authorities of Asian countries have also been more
vocal with their concerns about their currencies' strength, which
adds depreciation pressure to Asian currencies.
Much of the focus this week has been on China's stock market,
where the volatility isn't entirely unexpected. Many say the market
was due for a cool-down after doubling over the past 12 months and
more investors are looking to take profits. Also denting the market
were growing concerns about a clampdown on margin trading, where
investors borrow from brokers to shares. A slew of new-share sales
has also soaked up cash from the market.
"Investors are not prepared for such [a] steep loss but the
market is bound to face [a] correction," said Qian Qimin, analyst
at Shenyin Wanguo Securities. "The accelerated pace of IPOs has
drained certain liquidity on the secondary market."
Among the biggest losers this week were heavyweights in the
infrastructure, transportation, aviation and steel sectors.
International brokers have also been warning investors of a less
rosy outlook. On Thursday, Morgan Stanley (MS) downgraded Chinese
stocks for the first time in more than seven years; also this week,
Bocom International declared that the market will enter a highly
volatile correction phase.
Some investors say a string of articles published by China's
state media warning about investment risk is a major factor in the
market decline too. State-run People's Daily Online rebutted this
argument, calling the articles a mere "reminder of risks, not a
negation of the bull market."
China's Securities Regulatory Commission is stepping up efforts
to rein in informal financing channels -- including margin
financing, which brought in funds valued at around at 1.7 trillion
yuan ($270 billion).
China's regulator has "to make sure that investors understand
that the market is not a casino," says Teng Yin, chief strategist
at Everbright Securities. "If it's overheated, that's abnormal and
will siphon off capital from the real economy. The market is
supposed to optimize asset allocation for the real economy."
Still, most investors are staying bullish. Many say China's
stock market is still cheap, because after underperforming for
years it is now playing catch-up. Hopes remain for further monetary
easing, which could help stocks by sending extra cash sloshing
around the banking system. A gloomy real-estate outlook has also
sent cash flying into the equity market.
"We still expect a rebound in the rally before year end," says
David Gaud, senior fund manager at Edmond de Rothschild Asset
Management. "We are at a quite critical point where people are
already starting to feel the pain of being underweight China and
overweight India and Indonesia, for instance." Those latter two
markets are in negative territory this year. Any repositions would
favor inflows into China and Hong Kong, he added.
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