Asian stocks near 2015 lows on China economy worry, dollar strong

HONG KONG - An index of Asian shares outside Japan fell close to this year's lows thanks to a deepening selloff in commodities and concerns over slowing growth in China, while the dollar held its ground against a basket of currencies.

China's factory activity shrank more than initially estimated in July, contracting by the most in two years as new orders fell, according to a private survey that dashed hopes that the economy may be steadying.

"We believe the stock market panic in early July chilled economic activity, which is what the manufacturing PMIs picked up," ING economist Tim Condon said in a research note ahead of the Caixin PMI release.

MSCI's broadest index of Asia-Pacific shares outside Japan fell more than 1 percent before paring losses to be down 0.9 percent. The biggest losers were financials and cyclicals. The index's low for this year was on July 8.

Stock markets across the region declined with Japan's Nikkei down 0.5 percent and South Korea's Kospi falling 0.9 percent.

"We believe the macro environment remains challenging for emerging market assets amid headwinds of low commodity prices, concerns over China and a looming Fed tightening cycle," Barclays strategists wrote in a daily note in clients.

Recent flows data confirm that trend. Net foreign selling from emerging Asia has reached nearly $10 billion over the past two months with only India seeing some tiny inflows.

Although outflows have pummeled stock markets from Korea to Taiwan, valuations suggest more downside is likely.

While recent weakness in stocks has made emerging market valuations more attractive than those of developed market counterparts, they are twice as expensive as Asian financial crisis lows, according to research from Julius Baer.

On Wall Street on Friday, the Dow lost 0.3 percent and the S&P 500 shed 0.2 percent, due to a drop in energy shares.

In currencies, the dollar on Monday held broadly steady at 123.97 yen. The euro was steady at $1.1097.

While recent dollar moves have been buffeted by U.S. economic data, the broader trend was on the upside after the Federal Reserve last week left the door open for a possible interest rate increase in September.

The U.S. dollar has rallied 7.75 percent so far this year against the world's main trading currencies, after a 12.8 percent rise last year.

And "the dollar's recent rally may just be getting started," according to research from the BlackRock Investment Institute.

"Since the 1970s when the Bretton Woods fixed-currency regime ended and currencies began floating, a typical dollar rally has lasted roughly six to seven years," according to Russ Koesterich, BlackRock global investment strategist, who noted dollar rallies tend to be self-reinforcing, leading to greater inflows into U.S. assets in expectation of further dollar appreciation.

That traditionally is also a headwind for emerging markets, which have an inverse relationship to the dollar.

Commodities too are singing the emerging market blues.

Crude oil continued to flounder after posting its biggest monthly drop since 2008 in July on China's stock market slump and signs that top Middle East producers were pumping out crude at record levels.

U.S. crude was down 0.7 percent at $46.81 a barrel after losing 21 percent in July.

Copper prices fell 10 percent in July, the worst month since January and are now at their lowest levels since June 2009.

Overall the Reuters commodity index fell 10.8 percent in July, its biggest monthly fall since September 2011.

Reflecting the economic slowdown in China and sluggish growth in Europe and the Americas, international trade is also slowing.

Bonds were the sole bright spot.

The benchmark 10-year note yield held firm at 2.21 percent while 10-year Japanese bond yields stabilized at 0.41 percent.

source: interaksyon.com

Asia's export engine stuck in neutral despite U.S. uptick

HONG KONG - Asia's once-reliable export engine remains stalled two years into a global economic recovery, raising concerns about the region's competitiveness and its ability to motor through the next tough time for emerging markets.

Exports from seven of East Asia's biggest exporters - Japan, China, South Korea, Taiwan,Thailand, Hong Kong and Singapore - grew by just 0.8 percent in the third quarter, according to a Reuters analysis of national trade data, led by a 3.1 percent gain in exports to the U.S. from the same three months of 2012.



The data reinforce a worrying trend in a region where gross exports represent more than a third of its combined economic output: since peaking in 2010 as the global economy rebounded from financial crisis, Asia's export growth has rapidly cooled.

Double-digit growth, common to the past decade, petered out in 2011 and has not recovered.

"There is really no change in the main thing that's going on across Asia - which is no growth in exports the past two years," said Tim Condon, head of financial markets research at ING in Singapore.

"I think it's weak global spending, it's as simple as that."

There is a growing consensus that Asia faces slower growth and more uncertain prospects once the U.S. economy improves to the point where the Federal Reserve begins scaling back five years of radical monetary stimulus.

If exports fail to offset rising interest rates and ebbing global capital flows, economists say, Asia will have to rely on domestic demand to take up the slack - a difficult proposition given aging populations and other structural hurdles.

The failure of Asian exports to rise in tandem with global recovery has sparked a debate among economists about whether Asia might be losing its competitiveness as wages and other costs rise. But Asia's share of U.S. imports, according to data from the U.S. Census Bureau and Bureau of Economic Analysis, has been growing since 2002 alongside a steady climb in China's exports since its 2001 entry into the World Trade Organization.

"There's no compelling evidence that the competitiveness of EM (emerging market) Asia's exports has fallen," said Johanna Chua, head of Asia economics and market analysis at Citigroup in Hong Kong. The sluggish recovery in U.S. imports reflects the lopsided nature of the U.S. recovery, she said, one led by housing and shale gas instead of consumer spending or business investment.

"We're not getting a broad-based recovery," said Chua.

Japan's hollowing out

Japan, however, is a different story.

The world's third-largest economy has slowly been losing market share in the United States. Japanese exports fell almost 11 percent to $180.4 billion in the third quarter, leading Asia's export decline.

In local currency terms, Japanese exports climbed nearly 13 percent in the quarter because of a sharply weaker yen over the past 12 months. But the volume of shipments was virtually flat.

And while Japan lost its lead as Asia's top exporter to the United States and Europe a decade ago, it now appears to be losing its edge in China to neighbor and rival South Korea.

Asia's exports to China in the third quarter rose 1 percent, with a 9 percent rise in exports from Korea offsetting an 11 percent decline in exports to China from Japan. Indeed, in the past five years, Korea has edged out Japan as Asia's biggest exporter to China.

That may be a reflection less of declining popularity or competitiveness of Japanese products than a shift of production out of Japan to other production bases in Asia and the United States - the "hollowing out" of Japanese industry.

This phenomenon explains how a weak yen can boost exports in yen and the earnings of Japanese exporters calculated in yen even though shipments from Japan are falling. Japan's exporters are earning more from products sold - and manufactured - overseas.

"Japanese automobiles and general machinery remain competitive and, in fact, Japanese auto sales have increased in the United States this year from last. But exports have not increased as much," said Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.

"The reason is their continued shift to local production. The weak yen at current levels won't help reverse the trend of hollowing out of industry and is unlikely to boost exports as much as it used to."

source: interaksyon.com