Asia Markets: Asian markets pull back, lose early gains

April 16
12:52 2018

Asian stocks’ early gains eroded Monday, led by declines in Hong Kong and mainland China over worries about the Hong Kong dollar.

The currency last week weakened to the bottom of its trading band against the U.S. dollar, leading Hong Kong’s monetary authority to try to bolster it by selling $ 1.23 billion in U.S. dollars to buy Hong Kong dollars.

The Hang Seng Index HSI, -1.58% was down 1.5% midday while a benchmark of mainland-based companies that trade in Hong Kong was off 1.9%. Big-cap indexes in China—the Shanghai Composite Index SHCOMP, -1.51% and the CSI 300—logged similar declines.

“This is mainly a liquidity-driven decline” as some funds leave Hong Kong, said William Lo, chief investment officer at Infinitus Partners Asset Management. The firm has been underweighting Hong Kong stocks, expecting rising interest rates to increase local companies’ borrowing costs.

Local interest rates are rising: Hong Kong’s one-month interbank lending rate, or Hibor, jumped back to 1% on Monday from 0.85% on Friday. On a sustained basis, Lo said property developers would be hardest hit while lenders would be the major beneficiary.

Banks, though, were among the big decliners Monday, with China Construction 601939, -4.05%  and Industrial & Commercial 601398, -3.48%  both down more than 2%.

As for mainland shares, DBS strategist Ivan Li said recent soft data from China — including Friday’s news of a surprise trade deficit for March — have cast a shadow over the outlook for the world’s second largest economy. That has some investors on the sideline ahead of Tuesday’s release of first-quarter China economic growth and March business activity, he added.

Also on tap this week are more earnings out of the U.S. and speeches by Federal Reserve officials.

Asian stocks generally started higher Monday, but by the afternoon the only major indexes still showing gains were in Australia and Japan, and they were up by no more than 0.2%. Australia’s S&P/ASX 200 XJO, +0.21%  was aided by a 0.9% gain in energy stocks.

Oil prices jumped 8% last week, the most since December 2016, but crude CLK8, -0.80%  fell some 1% in Asia as the fear premium evaporated, the weekend’s Syrian airstrikes by the U.S. and allies having been lighter than some had expected.

S&P 500 futures ESM8, +0.37% rose 0.3%, putting the U.S. benchmark on track to reverse Friday’s decline in thin trade.

Away from China and Hong Kong, Asia Pacific stock declines were less then 0.4%.

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