Asia shares rise despite weak China, Japan data

Asian shares snapped a five-session losing streak yesterday as China’s central bank fixed the yuan sharply stronger, easing fears of depreciation for now, though a string of weak data from Japan to China and Indonesia suggested the bounce may be short-lived. Most stock markets in Asia advanced, encouraged by a stronger finish in US and European markets on Friday and by a relatively calm opening for China’s volatile markets after a week-long holiday. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 2.3%, after losing 10% of its value so far this year. Japan’s Nikkei jumped 7.2%, shrugging off data that showed Japan’s economy contracted more than expected in the final quarter of 2015, after losing 11% last week. China stocks fell yesterday, but losses were mitigated by a sharply stronger yuan and a surge in gold shares after the market reopened from the week-long Lunar New Year holiday. A slump in Chinese-listed shares in Hong Kong and a global sell-off last week driven by falling commodity prices and concerns about the impact on European banks, had put investors on edge ahead of the reopening of China’s stock markets. But even with disappointing Chinese trade data early in the session, initial losses were pared by the midday break. Exports fell 11.2% in January from a year earlier and imports tumbled 18.8%, both far worse than expected. China’s blue-chip CSI300 index was down 1.4%, at 2,921.23 points, while the Shanghai Composite Index  lost 1.6%, to 2,720.03 points.  Hong Kong stocks, which sank to 3-1/2 lows on Friday, staged a sharp rally, taking cues from a jump in Japan equities yesterday and a Friday rebound in US and European markets. The Hang Seng index jumped 2.7% , to 18,819.59 points, while the Hong Kong China Enterprises Index  surged 4.3%, to 7,829.12. In China, spot yuan jumped more than 1% to 6.4900 per dollar – its firmest this year – after the People’s Bank of China set its daily midpoint 0.3% stronger and the head of the bank was quoted as saying speculators should not be allowed to dominate market sentiment. The Shanghai Composite Index was down 0.7% in its first session since February 5, a relatively benign move given the wild swings seen worldwide recently.  Still, much weaker-than-expected Chinese trade data pointed to further pressure on the yuan and the potential for more capital outflows. January exports fell 11.2% from a year earlier, while imports dived 18.8%, suggesting the world’s second-largest economy is still losing steam. “The poor trade data in January suggests weakening of the underlying momentum in trade growth, which reflects lingering sluggishness in both external demand and fixed asset investment in China,” Bank of America Merrill Lynch strategists said. The disconnect between markets and economics was perhaps the starkest in Japan, where the Nikkei was on track to post its biggest single-day rise since the depths of the global financial crisis in 2008, shrugging off data which showed the economy contracted by an annualised 1.4% in the final quarter of 2015, worse than expected. “Although we consider the violent risk-off move of recent weeks largely unwarranted by economic fundamentals, the sheer magnitude of the sell-off has raised the risk that market volatility could feed back into the real economy,” said Ajay Rajadhyaksha, an economist at Barclays. “Central banks have very limited ability to ride to the rescue of risk assets.”  Barclays pointed to three sources of volatility that had potential negative feedback loops: lower oil prices, capital outflows and economic weakness in China, and pressure on European banks. “Of these, we consider China the biggest medium-term risk, but the least immediate issue,” wrote Rajadhyaksha. Indeed, the strong yuan fixing by the People’s Bank of China (PBoC) yesterday was seen by some traders as a move to deflect speculation about a possible devaluation that has been one of the main factors roiling global markets. In an interview over the weekend, PBoC Governor Zhou Xiaochuan said there was no basis for the yuan to keep falling, and China would keep it stable versus a basket of currencies while allowing greater volatility against the US dollar. “I still believe that Zhou Xiaochuan’s comments during the weekend and today’s strong fixing rate helped alleviating some of the pressure on the CNY, at least temporarily. And so the same for Asia FX,” said Nordea Markets’ senior analyst Amy Yuan Zhuang in Singapore, referring to the yuan. Oil prices consolidated gains after surging as much as 12% on Friday after a report once again suggested Opec might finally agree to cut production to reduce the world glut.