China equities buck the trend

US Asian equities down but China a bright spot

Asian equity markets have a defensive tone today even though an agreement on a follow-on US fiscal stimulus package has been reached. The Covid-19 mutation in the United Kingdom has spooked markets, with Japan, South Korea and Australia among the major markets that are grappling with spiralling cases.

Equity markets are mostly in the red in Asia. However, Mainland China markets have bucked the trend and rallied strongly, despite the US increasing the number of black-listed Chinese companies over the weekend, and the PBOC holding interest rates unchanged. The US stimulus package, the rollout of vaccinations in China, and talk that Jack Ma will pass part of Ant Financial to the government to smooth relations, seems to have trumped Covid-19 fears, with technology, materials and healthcare leading mainland markets higher. The Shanghai Composite has risen 0.60%, with the CSI 300 rising 0.50%

Elsewhere in the Asia-Pacific, the picture is somewhat glummer, with Covid-19 fears prompting investors to trim vaccine-driven long equity positioning. The Nikkei 225 has fallen 0.60%, with the Kospi down 0.40%. Hong Kong, Kuala Lumpur and Singapore are 0.20% lower, with Jakarta bucking the trend, rising 1.20% on news that e-com giant Tokopedia, is considering a dual listing IPO.

In Australia, 250,000 Sydneysiders entering a Christmas lockdown to control their most recent Covid-19 outbreak has spooked local markets. The All Ordinaries has fallen 0.15%, and the ASX 200 is 0.35% lower. A jump of 4.70% in iron ore prices today should ensure the fall-out is limited in Australian markets.

I do not expect the equity sell-off in Asia to turn into a material rout. The rally in China appears to have put a floor under Asia’s losses, and already most indices are recovering from their initial drops. US index futures are now in the green as well, and one suspects that after the initial Covid-19 panic has passed, the agreement on the US fiscal package will come to the fore and support equity markets. Today’s fall is likely to be about positioning as much as anything else.

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