Asia report: Stocks yield as confidence in China eroded by trade war, rise in US rates

Markets fell across Asia in Thursday trading as JP Morgan lost confidence in Chinese stocks and rumours swirled that South Korea's central bank will up interest rates.

During the previous session, strategists at JP Morgan lowered its outlook for Chinese stocks in expectation of an accelerating trade war with the US.

Strategists at the US bank downgraded their stance on Chinese stocks to 'neutral' from 'overweight' as a "full-blown trade war becomes our new base case scenario for 2019", where they see tariffs on Chinese imports being compounded by a strengthening dollar and weakening yuan.

Nonetheless, while the strategists cut their target for the MSCI China Index, they still expect the benchmark to rebound to 85 points by the end of the year, a 8.9% rise from its closing level overnight.

News overnight that the US Navy was planning to respond to recent Chinese shows of force in the South China Sea and a sharp rise in US Treasury yields also weighed on investor sentiment.

As an aside, and also on Wednesday, the Wall Street Journal had reported that Beijing was planning to sell $3bn-worth of US denominated debt this month, in what would be just the second dollar sale in a year.

With markets in mainland China closed for week-long national celebrations, Hong Kong was left to soak up the bad feeling and saw shares in oil firm CNOOC and developer Country Garden fall, with traders anticipating selling pressure on Chinese government debt when trading resumed on Monday.

Nevertheless, the Chinese yuan did manage to reverse early losses against the Greenback, which slipped 0.31% to 6.8689, bot only after having climbed atop 6.9.

Linus Yip, strategist at First Shanghai Securities, said: “It’s hard to reverse Hong Kong stocks' falling trend if economic data stay weak and the trade war threat remains.”

The Japanese Nikkei 225 dropped by 0.56% to 23,975.62 as investors took home profits after the index's recent climb to 27 year-high, while the dollar was down by 0.37% against the yen at 114.35.

Masashi Oda, general manager at Sumitomo Mitsui Trust Asset Management, told Reuters: "Asian shares were overall weak on the back of a strong dollar and rising U.S. yields, but the Japanese market’s downside was somewhat supported by the weaker yen."

However, both Toyota and Softbank saw their shares rise in Thursday trade after they announced plans to jointly develop car services such as hospital shuttles that are reliant on self-driving technology.

South Korea’s Kospi was down 1.52% at 2,274.49 after reports emerged that the Bank of Korea may hike interest rates later this month after governor Lee Ju-yeol

"It is necessary for us to create an investment-friendly environment and boost business sentiment. Also, it is the right time (for the central bank) to make efforts to strike a balance in the financial sector," said Lee at a meeting with Korean business leaders.

Korean cosmetic stocks also fell on the back of weak sentiment from Chinese consumers, with Amorepacific and Cosmax dropping severely in afternoon trade on Thursday.

Hong Kong’s Hang Seng Index fell by 1.73% to 26,623.87, taking its cumulative three-day loss to 4.2%, its worst losing streak since February.

In oil, Brent Crude dropped by 0.17% to $86.14 while WTI fell by 0.14% to $76.30.

The Australian S&P/ASX 200 was the lone riser in major Asian markets as it rose by 0.49% to 6,176.30 as alumina miners Alumina Ltd and South32 shot upwards as the price of the chemical compound skyrocketed.

The price increase was catalysed by the closure of the world’s second largest alumina refinery, the Alunorte refinery in Brazil, which has ceased production indefinitely.

Fund management company Magellan Financial was also on the rise as it revealed that chief executive Hamish Douglas and chairman Brett Cairns will permanently switch roles on Friday.

New Zealand’s S&P/NZX 50 dropped by 0.40% to 9,257.18 as A2 Milk Co continued to lead the index’s fallers for a second day after chief executive Jayne Hrdlicka and director Peter Hinton disclosed share sales in rapid succession.

Elsewhere, Genesis Energy dropped after shedding rights to an 8.6 cents per share dividend and retirement village operators Summerset Group, Ryman Healthcare, Arvida and Metlifecare dropped after the former reported a decline in third quarter sales.

The Australian dollar weakened by 0.29% against the greenback to AU$1.41 while New Zealand’s currency dropped by 0.30% to NZ$1.54.