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Australia offers slight hope among Asian stocks before tariff deadline

Australia offers slight hope among Asian stocks before tariff deadline

Australia was the sole ray of light during a testing session as the S&P/ASX 200 closed out at 6,215.50 for a 0.52% rise.

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By Staff Journalist 06.07.2018

There was no sign of respite for Asian stocks on Thursday as losses depended late in the session ahead of the expected arrival of auto tariffs from the US and China. Tensions have simmered all week, and investors were cautious again ahead of the 6 July deadline for the first wave of tariffs.

The Shanghai Composite dropped for successive days, this time by 0.91% to finish at 2,733.98, while the Shenzhen Composite slid even further, ending on a 2.2% drop from the previous session. The NASDAQ-style ChiNext also contracted by 2.45%.

The Nikkei 225 faired a little better, bouncing back from a session to close at 21,546.99, a 0.78% loss. Retailers and oil producers fared worst in Japan as the Fast Retailing Index tumbled by a sizeable 2.52%. The downward trend continued with the Topix, which was 1.01% lower. Every single subindex saw losses of some kind.

The Hang Seng Index was trading lower midway through the afternoon with a 0.63% loss, with Hong Kong’s services and materials sectors seeing the most notable declines. Heavily weighted financial stocks also dropped.

South Korea’s Kospi was on track to move upward after strong early gains, but this reversed later in the day, and it eventually ended at 2,257.55, a 0.35% fall. Samsung Electronics headlined the poor performers in tech with a 0.65% downturn, while Hyundai Engineering & Construction slumped even lower.

Australia was the sole ray of light during a testing session as the S&P/ASX 200 closed out at 6,215.50 for a 0.52% rise. The financial subindex also climbed 1%. Meanwhile, the MSCI Index for Asian markets went lower and looked set for a 0.53% drop later.

Markets were hamstrung by the escalating dispute between China and the US, which has been headline news all week. It will be a crunch session on Friday as President Donald Trump is due to start levying a 25% tariff on Chinese goods, an action that the Chinese government will return in kind with the same tariffs on the same value of US goods – $34bn.

“Markets are not pricing in just the first tranche, but increased risks of an escalation to broad-based tariffs across the entire merchandise goods space,” Mizuho Bank Foreign Exchange Strategist Weilian Chang said. “The fear is that Trump has threatened to retaliate against China's retaliatory tariffs, and it could be more than a bluff to coerce.”

Johanna Chua, Citi Global Markets Asia Head of EM Asia Economics and Strategy, said that Chinese market declines have been particularly pronounced recently due to trade issues coming on the back of concerns about the wider Chinese economy and the potential for a slowdown.

She added: "I think emerging markets at the moment, including China, are all still relatively vulnerable because I think the divergence story about growth trajectories, including the US looking better than the rest of EM (emerging markets), is [a] story that's going to linger. I don't think the China slowdown growth momentum has really bottomed yet."

Moving onto currencies, the yuan finally held strong after falling to its lowest point against the dollar for nearly a year on Tuesday. Thursday’s steady finish follows reassurances from the People’s Bank of China that it would not look to “weaponize” the currency in its ongoing dispute with the US. The onshore yuan was trading against the dollar at 6,6289 late in the day.

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