Asia wrap: China's ongoing property developer dread

Stephen Innes SPI Asset Management

Asian equities faced downward pressure, primarily influenced by concerns surrounding Chinese property developers who are compounding investor angst and struggling to cope with a US policy-driven yield curve reset higher.

Declines were notable in equity markets across China, Australia, and South Korea. These declines collectively dragged down a regional share gauge for the fifth time in six days. The Hang Seng Index in Hong Kong notably experienced a substantial drop, falling by as much as 1.6%. A tell-tale sign of higher US yields weighing to tech components compounded by an upswing in geopolitical risk

The EU's chief trade negotiator warned China sternly, signalling the EU's intent to adopt a more assertive stance in defending its interests. Predictably, this added to the overall downbeat mood in the market, reflecting heightened geopolitical tensions.

At the crux of ASEAN market issues, the ongoing concerns regarding Chinese property developers, focusing on China Evergrande Group, continued to weigh on market sentiment. Evergrande's decision to cancel a creditor meeting added to apprehensions about its substantial debt burden, further contributing to the local stock market's decline.

In contrast to the broader downtrend in Asian markets, Japanese equities recorded modest gains. This divergence could be attributed to a dovish BoJ and a weaker Yen.

Over the past month, the People's Bank of China (PBOC) has actively intervened in managing the Renminbi (RMB), aiming to maintain a relatively stable exchange rate of around 7.30 RMB to the US Dollar (USDCNY). However, despite these efforts, the US Dollar has strengthened against the currency world. Consequently, the RMB has appreciated significantly when assessed on a trade-weighted basis. This appreciation has had the unintended consequence of tightening financial conditions within China and potentially negatively impacting the country's exports.

Author

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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