Hong Kong: Asian stocks faltered on Wednesday while the Australian dollar and emerging market currencies slid, with investors reluctant to keep a near three-month rally in risky assets going without more good economic news.
Reports showing an unexpected decline in US housing starts to a record low and the worst-ever contraction in Japan’s economy in the first quarter prompted investors to shift money to defensive sectors and trim their exposure to emerging markets.
A key gauge of Australian consumer sentiment also tumbled despite rallying equity markets, paving the way for dealers to take some profits on the Australian dollar’s rise on Tuesday after it earlier hit a seven-month high.
“Risk appetite has held the upper-hand of late but an emerging negative balance of recent economic data should be injecting some caution,” said Patrick Bennett, Asia FX and rates strategist with Societe Generale in Hong Kong, in a note.
Japan’s Nikkei share average edged up 0.4% in choppy trade despite the grim economic news, with shares of pharmaceutical companies and trading houses gaining.
Japan’s gross domestic product contracted 4% on a quarterly basis, roughly in line with expectations. The outlook was uncertain, with some economists expecting stimulus spending to hasten a recovery, while others were concerned that collapsed exports would continue to inhibit domestic demand.
”Weaker-than-expected figures for capex and private consumption suggest the negative impact from the export plunge is spreading to domestic demand,” said Hiroshi Shirashi, an economist with BNP Paribas.
The MSCI index of Asia Pacific stocks outside Japan was nearly unchanged, after hitting the highest since 6 October on Tuesday.
The index is still up more than 50% from lows in early March, but like other global benchmarks appears to have lost steam in recent sessions on fears markets have risen too far too fast without concrete signs of economic recovery.
Consumer discretionary and energy stocks were the few sectors not in the red on Wednesday, although there were no clear themes to trading, with position adjustments dominating.
Hong Kong’s Hang Seng index slipped 0.4%, with property stocks under fire, though the sub-index of mainland companies listed in Hong Kong edged up 0.2%.
China continues to embody the hopes that Beijing can essentially spend its way to a recovery which will spill over to the rest of the region. To jump start domestic spending, the government said on Tuesday it would increase a subsidy scheme to 5 billion yuan ($733 million) from 1 billion yuan to encourage purchases of automobiles and home appliances.
It was not clear if this was new spending.
Those hopes had inspired buying of the Australian dollar and emerging Asian currencies. However, dealers were cutting their exposure to those currencies and buying back US dollars and yen on Wednesday.
The US dollar strengthened broadly against regional currencies, rising 0.7% against the South Korean won and 0.8% against the Phillipine peso .
The dollar slid 0.4% against the yen to ¥95.58, having carved out a range of about 94.50 to 101.00 in the last three months.
US crude for July delivery edged down 0.4% to $59.88 a barrel after rising to a six-month intraday high of $60.48 a barrel on Tuesday after refinery problems raised fears about tight supply in the summer.