Asian equities in buy-the-dip mode
Asia’s heavyweight markets have started the week on a very positive note, after China initially dipped on weak PMI data. China’s Shanghai Composite, CSI 300 and Hang Seng all dropped in early trade with the mainland exchanges, abruptly reversing course as foreign investors pumped nearly a billion dollars down the Hong Kong to Shanghai/Shenzhen Connect. That has seen a stunning reversal as regulatory risk has been forgotten. The Shanghai Composite is 2.10% higher, the CSI 300 has leapt by 2.50%, and the Hang Seng is 0.90% to the positive.
Wall Street finished on a soggy note on Friday after US inflation data disappointed. That pushed US yields down, but equities could not rally as fears of peak-recovery led market heavyweights like Amazon lower. The S&P 500 fell by 0.54%, the Nasdaq by 0.71% and the Dow Jones by 0.42%. I suspect some month-end rebalancing of portfolios by institutional investors played its part as well.
With no significant event risk emerging over the weekend, however, investors could not resist piling into buy-the-dip in Asia as the week started. US index futures on the S&P 500, Nasdaq and Dow Jones are up over 0.50%, reversing all of Friday’s losses. In Asia, the Nikkei 225 has leapt by 1.60%; the Kospi is 0.55% higher, with Taipei climbing by 1.10%. Australian markets have also roared higher after Square announced it would buy Australia’s Afterpay. The ASX 200 is 1.25% higher, while the All Ordinaries has climbed 1.35%, with the Sydney bank holiday and the spread of state lockdowns to Queensland all but forgotten.
Regional Asia has fared less well, with investors’ attention seemingly focused on the worst performers of last week being the best performers this week. That has left regional Asia markets out in the cold, with investors focused on delta-variant nerves and a deteriorating political situation to boot in Malaysia’s case. The government is rapidly running out of Teflon to slip a no-confidence vote over its handling of the economy and the pandemic.
All of that sees Singapore falling 0.65%, with Kuala Lumpur 0.35% lower with Jakarta just 0.15% higher today, as Covid-19 cases fall (its due to lower testing), and restrictions appear to have been eased. Bangkok is unchanged.
European markets are likely to look at the performance of the US futures and the Asian heavyweights today and move straight into buy-the-dip mode themselves, in a classic case of Euro-FOMO. With so much heavyweight data out, we are indeed in for another volatile week ahead. But if today teaches us nothing else, it is that there is still an ocean of capital looking for a home in a zero per cent world. Therefore, any material dips in asset prices, such as equities, will inevitably be short-lived.
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