Asia Markets wrap

Hong Kong: Financial markets took a breather as a warning appeared in Chinese state-backed media about the risks of a bull market in what is one of the best performing stock markets in the world this year.

China Economic Times warned in an opinion piece the dangers about the “mad cow” market turning into a wealth “meat grinder” which could spread to other parts of the economy.

China’s mainland index the CSI300 dropped 1.81% breaking an eight-day winning streak during which it rose above its January 2018 peak.

Hong Kong’s Hang Seng index slipped 1.84%, Japan’s Nikkei 225 eased 1.06% and Australia’s S&P ASX 200 benchmark retreated 0.61%.

ING economist said the People’s Bank of China is expected to put broad-based easing on hold as asset prices have increased rapidly.

“The PBoC does not want to create more liquidity to fuel the asset markets, including the real estate market and stock markets,” Iris Pang, ING’s Chief Economist for Greater China, said.

“Our conclusion on monetary policy is that there is a high chance that the PBoC will put broad-based liquidity easing and interest rate cuts on hold, and focus more on helping lending to SMEs and agricultural activities.”

While the stock market appeared frothy to Chinese officials, the economy continues to rebound with data showing sustained credit growth. Total social financing rose for the fourth consecutive months, accelerating to 12.8% year-on-year in June from 12.5% in May.

“The continued improvement was led by rising household loans, shadow financing, and corporate bond financing. We expect credit growth to rise further in H2 on larger-scale government bond issuance and sustained targeted easing to SMEs,” Barclays economists said in a note.

Credit markets also retreated as investors became risk averse and markets digested the recent supply of newly sold bonds.

The Asia IG index was 3 basis points wider at 80/81 bps and sovereign CDS moved out by 2-5 bps.

Investors will await for news or decisions after policy meetings at the Bank of Japan and the European Central Bank in the week ahead and industrial data for the major economies. Retail sales data for the US and China and inflation numbers for the US, Eurozone and UK will indicate how price pressures will dominate the post-Covid world.

IHS Markit economists said the Chinese economy is projected to have expanded at an annual rate of 0.6% during the second quarter, rebounding from the -6.8% slump in the opening quarter.

“China is leading the world recovery, with economic activity rapidly returning to more normal levels for both manufacturing and services. A key strength supporting China’s rapid economic rebound is the large size of the domestic consumer market, which has helped to support improving new orders in both the manufacturing and services sectors,” IHS Markit economists Rajiv Biswas and Bernard Aw said in a note.

“Strong growth in China in 2021 is expected to boost the export sectors of many other Asian economies, given the importance of China as a key market.”

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Foreign Exchange: China bond rout, stock boom push up yuan

Asia Stocks

# Japan’s Nikkei 225 retreated 1.06%

# Australia’s S&P ASX 200 edged down 0.61% 

# Hong Kong’s Hang Seng index fell 1.84%

# China’s CSI300 dropped 1.81%

# The MSCI Asia Pacific index %.

Stock of the day 

Carmaker BYD Co Ltd rose as much as 6.2% in a falling market following a report it plans to spin-off its semiconductor business for listing on Sci-tech Innovation Board in Shanghai or ChiNext in Shenzhen.

This report appeared first on Asia Times Financial.

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