Monday, January 11, 2016

Asia stocks wary as China concerns remain, oil drops

HONG KONG/TOKYO - Asian stocks held near four-year lows and crude oil prices approached a 20 percent drop in less than two weeks as investors worried over the extent of China's economic slowdown and its impact on emerging markets.

MSCI's broadest index of Asia-Pacific shares outside Japan edged 0.4 percent higher but still stood near a four-year low touched on Monday, and was still down more than 8 percent since the start of 2016. It fell 12 percent last year.

"Investors are still concerned about the extent of China's slowdown and while we may be in the middle of a consolidation phase, we have yet to see any data indicating a turnaround which is feeding the overall uncertainty," said Ben Pedley, head of investment strategy for Asia at HSBC Private Bank in Hong Kong.

With investors still licking their wounds from last year's plunge in global commodity prices and a sharp selloff in Chinese markets, 2016 has brought about more pain for investment portfolios in the form of a deepening slowdown in the global economy and volatile Chinese markets.

Japan's Nikkei fell 1.3 percent after a market holiday on Monday, hitting a three-month low and down over 8 percent so far this year while Chinese stocks swung around in volatile opening trades.

According to MSCI global indexes, BRIC and other emerging market indexes have bled the most so far this year with losses of 7.2 and 6.8 percent losses each. MSCI's broadest gauge of world stocks fell to its lowest level since Sept 2013.

On Wall Street, the S&P 500 managed to stabilize on Monday after three straight days of one-percent-plus declines, ending the day up 0.1 percent.

"It is a good sign that U.S. shares bought back in late trading to end in positive territory ... Maybe they were helped by the view that the Fed may not be able to raise rates when markets were gripped by fear over China and falling oil prices," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Indeed, money market futures are starting to price out the chance of multiple Fed rate hikes this year, with only a roughly 50 percent chance of a second hike priced in. At the start of the year futures were fully pricing in two rate hikes.

The market is far from convinced that the Fed is going to raise rates in March, after implementing its first rate hike in almost a decade only last month.

Commodity prices remained under severe pressure, with oil prices hitting new 12-year lows on concerns about slow demand and oversupply - including U.S. shale oil production and a likely supply increase from Iran with sanctions lifted.

U.S. crude futures fell to a 12-year low of $30.88 per barrel on Monday, and last stood at $31.19, down almost 16 percent so far this year.

Brent futures fell to $31.17 per barrel, also a 12-year low.

Copper, seen as a good gauge of the strength of the global economy because of its wide industrial use, fell more than 2 percent on Monday to hit 6 1/2-year low of $4,381 a tonne.

Commodity-linked currencies stayed under pressure. The Australian dollar dipped 0.2 percent in early trade to $0.6980 after a small bounce on Monday, edging towards the four-month low of $0.6927 set earlier on Monday.

The Canadian dollar hit a 12 1/2-year low of C$1.4245 to the U.S. dollar on Monday and last stood at C$1.4225.

South Africa's rand was fragile at 16.81 rand to the dollar after a massive plunge on Monday that briefly took it to a record low of 17.995.

The dollar was firmer against other major currencies.

The euro traded at $1.0857, having slipped 0.6 percent on Monday.

The yen, which had been buoyed by safe-haven flows, also stepped back from a 4 1/2-month high touched on Monday at 117.70 yen to the dollar.

The pound was particularly weak due to waning expectations of a rate hike by the Bank of England as well as uncertainty over a referendum on whether or not Britain should stay in the European Union.

It stood at $1.4540, trading near 5 1/2-year low of $1.4491 hit on Monday.