By Moxy Ying and Harry Suhartono
The 90-day cease-fire in the U.S.-China trade war added about $520 billion of market value back to Asias equity markets on Monday. Now, it looks like the party is over.
Here is where we are: Asian took a breather Tuesday, with MSCI Asia Pacific Index coming off from a near two-month high. Japans Topix closed 2.4 percent lower, ending its seven-day rising streak as investors took profits and the yen strengthened. Chinese shares fluctuated between gains and losses, and Hong Kongs Hang Seng Index fell slightly.
The theories swirling around the short-lived rally in Asian stock markets include:
A lot could happen in 90 days and there hasnt been much clarity past that. Pictet Wealth Management wrote in a Dec. 3 report that “the devil will be in the negotiation details.” Some say investors are seeing a “sell the rally” strategy play out. There was also the fact that Trump left his advisers scrambling on Monday to explain a trade deal he claimed hed struck with China to reduce tariffs on U.S. car exports. This agreement doesnt exist on paper and hasnt been confirmed by Beijing, which has thrown some shade on the optimism. We had an analysis piece about Chinese firms that are worried the U.S. trade-war truce could be short-lived.
This brings us to: what happens now? Without slanting the discussion one way or another, there are several things to watch our for. First, market turbulence is here to stay. In a research report published Monday, Societe Generale strategist Frank Benzimra said the trade truce is a positive development for risky assets, but future talks may not be smooth and that “opens the door for more volatility during the next three months.” That should be good news for traders.
Aberdeen Standard Investments fund manager Bharat Joshi is more skeptical. He recommends riding the wave available from this run-up in stocks, but that this wont last long. “The recent gain from the truce between U.S. and China is more like a knee-jerk reaction, and I dont expect that to help the overall global fundamentals going forward,” he said. “I would prepare myself to cash in in six months or so.”
Credit Suisse published a note where it upgraded South Korean stocks to a buy rating and Taiwan to a hold. In that report, the firms analysts also said emerging-market stocks will have a more favorable climate next year on a flat to marginally weak U.S. dollar, while it double-downgraded Indian equities to sell and dropped Malaysia one notch to a hold rating.
For the optimists out there, perhaps historical data can help: December hasnt traditionally been a bad month. In the past 30 years, the MSCI Asia Pacific Index had positive December returns almost 70 percent of the time. While the first day of that month hasnt anticipated the gauges monthly direction in the past two years, it did between 2011 and 2015.
One bright spot in Asia has been the Philippine market — the countrys benchmark gauge kept its momentum, rising as much as 2.1 percent on Tuesday and going past a key level of 7,600. “There are no sellers right now, so stocks are rising sharply and rapidly,” said Manuel Cruz, a strategist at Papa Securities.