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Asia Market Update

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Chinese stocks trade mixed after Q3 growth falls to single digits

Mon, Oct 20 2008, 07:18 GMT
by Eben Esterhuizen

TradeTheNews.com

Equities: The first equity trading session of the week in Asia is showing mixed results on continued reluctance by investors to look for a bottom amid fresh evidence of economic deceleration being somewhat negated by coordinated policymakers response to shore up regional financial system. Session-opening gains seen in Tokyo and South Korea have largely been pared back in profit-taking with the Nikkei going into the mid-day break up 0.5% and Korea's Kospi giving up 0.6% after initial opening gains of over 2.0%. South Korea's government announced a $130B bailout plan for regional banks containing $100B of foreign currency debt guarantees and $30B of direct USD infusion, however it also made no promises as far as recapitalizing lenders who still run the risk of an S&P downgrade nor addressed commercial banking concerns by leaving bank deposit guarantee intact. Bank of Korea chief Lee issued a cautious statement, suggesting that further policy easing could adversely affect currency conditions and may not be needed, projecting 2009 GDP to remain positive.

Elsewhere, economic data coming out of China has also given equity markets little reason to cheer. Q3 GDP in China came in at the lowest growth rate since Q2 of 2003 at 9.0%, below analyst estimates of 9.7%. September y/y retail sales remained on par with prior 23.2% figure, however industrial production fell to 11.4% from 12.8% y/y, below estimates of 13.4%. Rhetoric coming out of China following the release was also rather dovish, suggesting that the impact of the subprime crisis on China's economy had vastly exceeded expectations and no turn- around in growth was seen despite all the measures taken. China economy's dependence on global import demand and repercussion of its slowdown were particularly visible in this GDP report, with net export component contributing to GDP decline by 8.9 points. China's officials went on to say that the global woes seen coming out of the repercussions of the credit crunch appeared to be more serious than those seen during Asian financial crisis.

Aussie S&P/ASX is among the bright spots in the session as investors cheered the prospects of the stimulus package announced by Prime Minister Rudd last week. In spite of expectations of a moderate decline in economic growth in Australia and a rise in unemployment, 58% of polled voters expressed optimism about Aussie economy over the next 3 years while also boosting Kevin Rudd's popularity by 10% to 71% - one of the highest PM approval ratings on record.

Hong Kong Hang Seng index is also rising modestly following four consecutive sessions of losses after the announcement by china's government promising to decrease transaction fees for home sales to encourage development of the housing sector in Hong Kong as well as mainland China.

Finally, US President Bush has responded to calls from France and Japan leaders to hold a G8 summit in New York before the year- end to further "discuss the global response to the financial crisis and ideas to prevent such a crisis from recurring in the future. "

- Commodities: Crude oil prices are higher by more than 2. 5% and trading near the session's best levels ahead of this week's emergency OPEC meeting, which is scheduled for Oct 24. Over the weekend, OPEC President noted that the cartel may agree to cut crude oil production by 1M-2M bpd, which is about 4.7% of OPEC's daily output. The OPEC President also noted that he saw a floor for oil prices at $70-$90/bbl. Spot Gold is higher by more than 2% and trading above $805/oz. Gold has tracked the gains in oil prices.

- Forex: USD/JPY is marginally higher, tracking the gains on the Nikkei 225 and S&P 500 Futures. Additionally, the USD is weaker against the EUR, CHF and GBP, despite reports that European insurance company ING may receive a €9B cash injection from the Dutch government. The JPY is weaker against the GBP, EUR and CHF on an improvement risk appetite. The AUD and NZD are gaining by more than 1% against both the USD and JPY. However, he NZD is underperforming the gains being seen in AUD ahead of this week's CPI data and RBNZ interest rate decision. The CHF is currently tracking the broadly weaker yen and declining against the AUD, GBP and EUR. In terms of the Asian currencies, the KRW opened higher by more than 8% against the USD following the various measures announced by the South Korean govern over the weekend. However, the KRW has since pared most of its gains following the decline on South Korean equities as some believe that the government's plan to help banks does not address the risk of a global recession.

Published on  Mon, Oct 20 2008, 07:19 GMT