Trade of the Day: Stocks rise in Asia ex-China; oil and gold in retreat; Treasuries edge up
Quote of the Day: “We are forecasting a profits recession for US companies, with profit margins being squeezed by wage growth and slowing demand. If the economic slowdown gathers pace, companies are likely to reduce capital spending and headcount. In this scenario, investors may want to exercise caution when it comes to lofty stock market valuations. Bond market prices are also at relatively expensive levels … the yield curve could be positively sloped by around end-Q1 2020,” Martin Arnold, economist at Schroders, said in the US outlook for 2020 published on Wednesday.
Number of the Day: 9.9%. China’s industrial profit fell by this margin in the biggest fall since the start of the year, marking a second straight month of decline.
Tip of the Day: “We remain constructive on Asia ex-Japan equities. The region is trading at attractive valuations, and in the case of China, valuations are at troughs of 2015 and the Lehman Brothers collapse. Consensus earnings growth forecast for 2020 range between 10-15%. We think that low double-digit expectations are achievable,” said Eric Moffett, Portfolio Manager of T. Rowe Price’s Asia Opportunities Strategy.
Asian markets rose across the board as trade talk optimism took hold but mainland China stocks tumbled as the world’s second-largest economy posted a shock decline in industrial profits.
The MSCI Asia Pacific Index jumped 0.3%, Japan’s Nikkei index climbed 0.4%, but China’s CSI benchmark fell 0.41% after October industrial profits declined to 427.56 billion yuan, on the back of the 5.3% drop in September.
“We expect industrial profit growth to remain sluggish, given the deteriorating growth outlook and elevated uncertainty amid the US-China trade conflict. In our view, Beijing will likely roll out more easing measures in coming months despite a limited policy room,” said a report from Nomura.
The Hang Seng index, Hong Kong’s benchmark, rose 0.15% as gains in technology, basic materials and industrials offset the losses posted by telecoms and healthcare. Financial markets are also waiting to see if Trump will sign punitive legislation backing Hong Kong’s protesters that passed Congress nearly unanimously. With Beijing condemning the pending Hong Kong Human Rights and Democracy Act as tantamount to foreign meddling, analysts say its passage could complicate, if not scupper, ongoing and delicate US-China talks towards a “phase one” trade agreement.