Asia: Nikkei falls as Hong Kong closed for business

National Day celebrations in China meant several Asian markets were closed and continuing protests in Hong Kong and a weak finish on Wall Street caused mixed markets elsewhere.

China’s manufacturing purchasing manager's index (PMI) figures came in just ahead of expectations was a positive boost, though Japanese data was less encouraging.

With Chinese and Hong Kong markets closed, Nikkei closed down 0.56% and the MSCI Asia index was down 0.4%.

The Bank of Japan’s Tankan index for large manufacturers, Japan’s most widely followed business confidence index, showed a small rise from 12 to 13 in the third quarter, but the more domestic oriented non-manufacturing sector slipped from 15 to 13 and, even more importantly, the forward-looking outlook components fell for both sectors.

“The Abenomics honeymoon is over,” declared Berenberg, “as the hard reality of fiscal adjustment and slow structural reform begins to offset the still enormous monetary stimulus.”

Industrial production fell 1.5% in August compared to the July and fell 2.9% on the same month last year, while retail sales resumed their rebound with an 1.9% increase month-on-month, up 1.2% year-on-year.

Chinese official manufacturing PMI was unchanged at a modest 51.1 in September, marginally ahead of expectations of a straight 51. The HSBC PMI was also unchanged at 50.2 after a downward revision of the previous flash estimate.

However, neither index points to a dramatic slowdown in the economy, said Berenberg economist Christian Schulz, which supported his forecast for GDP to continue expanding at rates a little below 7.5% this year and in 2015.

“With the economy showing little sign of significant acceleration nor deceleration, the focus has turned to politics in Hong Kong.

Hong Kong’s chief executive, Leung Chun-ying are being supported by Beijing in their decision to adopt a wait-it-out strategy, in the hope local opinion will turn against the demonstrators.

“The government can tolerate the blockade of three or four or five areas and see how the demonstrations go, so the only way the demonstrators can go is to escalate it — spread it to more places, and then they cannot sustain it — or they will become violent,” a source close to the Hong Kong government told the New York Times.

Berenberg's Schulz added: “The big risk from the standoff is either that the protests provoke heavy handed reprisals from the authorities in one of the world’s major financial centres, or that the show of dissent in Hong Kong emboldens mainland citizens. Both seem unlikely. Mainland citizen’s access to information is severely curtailed for a start.

Given the leadership's plan to try to wait protesters out and the Chinese leadership’s unwillingness to offer true universal suffrage in Hong Kong, "it is unlikely they will change their mind" in the face of these protests.

“The Party may eventually soften the electoral proposals to try and assuage some of the protestors, perhaps by offering further discussions on democracy for after 2017.”