Asia stocks tumble on rate fears

Business | Kevin Xu and Agencies 9 Jul 2019

Asian stocks tumbled yesterday after relatively strong US employment data tempered hopes the US Federal Reserve might cut interest rates.

Benchmarks in Shanghai, Tokyo, Seoul and Hong Kong all declined with the Hang Seng Index shedding 443.14 points to close at 28,331.69 with a market turnover of HK$75.7 billion.

Geopolitical tensions weighed as investors turned their focus to Federal Reserve chairman Jerome Powell, who will testify to Congress just days after the latest labor report delivered signs the US economy remains on track.

Sentiment was further dampened by US investment bank Morgan Stanley's decision to cut its global equities allocation to the lowest in five years and downgrade its investment recommendation to underweight, saying the outlook for stocks over the next three months looks particularly poor.

Shares of local property developers declined with Sun Hung Kai Properties (0016) dipping 1.54 percent to HK$134.5 and Hang Lung Properties (0101) 1.88 percent to HK$18.84. Wharf Real Estate Investment (1997) went down by 2.73 percent to HK$53.5.

All blue-chip stocks declined except Sands China (1928), which increased by 0.39 percent to HK$38.9. Index heavyweight Tencent (0700) fell 2.45 percent to HK$351, AIA (1299) was down 1.97 percent to HK$84.55. Shares of Kingdee International Software (0268) tumbled 13.53 percent to HK$6.9 after it issued a profit warning last Friday.

Small-cap stocks Asia Television (0707) dived 41.82 percent and Beijing Sports and Entertainment Industry (1803) slumped 78.57 percent. China Aoyuan Group (3883) dropped by 8.61 percent to HK$10.62.

OCBC Wing Hang Bank, meanwhile, said the recent political unrest and demonstrations in Hong Kong has had a limited impact on the local market.

In the mainland, the Shanghai Composite Index slid 2.58 percent to 2,933.36 points yesterday, the worst among the region's major benchmarks, due to concerns over a flood of new listings which may overload the market and add to risk-off sentiment in emerging markets.

Profit forecasts remain too optimistic, as measures of manufacturing health around the world keep deteriorating, Morgan Stanley's strategists including Andrew Sheets wrote in a note Sunday. Expectations for looser central bank policy are high, leaving little to boost already elevated equity prices, they said.

With global stocks already up 16 percent this year, some strategists are taking a more cautious stance as worries about a fragile global economy and the US-China trade war linger. Bond yields have hit multi-year lows in many parts of the world in recent weeks, showing a resilience in the appetite for haven assets.

The Morgan Stanley strategists prefer stocks in Japan and Europe to those in the United States and developing nations, according to the note. They increased allocations to Japanese and emerging market government bonds.

Since the start of the year, global equities have generally been bolstered by expectations that central banks will keep interest rates at or near record lows to boost economic growth.

Those expectations were tempered by a US labor report on Friday that showed nonfarm payrolls jumped 224,000 in June, beating forecasts for 160,000, in a sign the world's largest economy still had some fire.

Given the strength shown in that data, investors now expect Powell to go slow on rate cuts this year.

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