News that US prosecutors filed criminal charges against Huawei Technologies poured cold water on a region that recovered about US$1.6 trillion in equity values since a December low. It also came as US and Chinese officials are scheduled to meet for another round of trade talks this week to resolve a months-long standoff.
On top of that, two US industry bellwethers, Caterpillar and Nvidia, blamed a slowdown in Chinese demand for disappointing results, and early data suggest the Chinese economy slowed for an eighth month in January.
While the MSCI Asia Pacific Index trimmed most of its 0.8% loss by 2.58pm in Hong Kong, the equity volatility shows how skittish the mood is.
“You just don’t want to be in this market where there is so much event risk going on,” said Kyle Rodda, an analyst at IG Group in Melbourne. Now traders are waiting for some good news from either the trade-war talks or the Federal Reserve, which will announce its interest-rate decision on Wednesday, he said.
Most of the region’s markets were in the red on Tuesday, even as Japan’s Topix index erased a decline of as much as 0.9% and China’s CSI 300 Index reversed a 1.1% slide after the nation’s securities regulator dismissed a local media report about the introduction of short-selling tools in 2019.
The Asian benchmark is still on track for a 5.3% gain in January, but scepticism remains high as traders reminisce about last year’s great equity start that went up in smoke.
Tech companies — among the biggest components of the index — are under the microscope, and anxiety is growing that the charges alleging that Huawei stole trade secrets from a US rival and committed bank fraud may derail the upcoming trade discussions. The Wednesday and Thursday talks will cover US demands for structural changes to China’s economy and Beijing’s pledge to buy more American goods.
The impact of the disappointing results from Caterpillar and Nvidia was apparent in Asia, where machinery makers such as Japan’s Komatsu and Hitachi Construction Machinery, and chip-related companies including Advantest and Tokyo Electron fell. Taiwan’s Taiex index was one of the region’s biggest decliners, weighed down by Taiwan Semiconductor Manufacturing.
“Machinery and chipmaker giant’s earnings guidance painted a weaker outlook for the peak earnings season ahead,” Margaret Yang, a market analyst with CMC Markets, wrote in a note to clients. “The trade and growth uncertainties surrounding markets over the past few months have started to materialize, and Trump’s radical trade policy has resulted in adverse economic impact to even the American companies.”
Looking ahead, there may be more gloom for investors as Chinese tech titan Alibaba Group Holding Ltd. is set to unveil its earnings Jan. 30. While revenue is expected to have risen 44% during the December quarter, that’s the company’s slowest pace of expansion since early 2016, showing even Alibaba can’t escape the widening malaise.