Hong Kong: Asian shares retreated a bit after touching a fresh 10-month peak on Wednesday, as investors booked profits in the belief that the run-up in stocks had become overstretched.
Upbeat: Traders at a securities exchange house in Shanghai. The main Shanghai index jumped 2.6%, its best performance in seven weeks. Qilai Shen / Bloomberg
Shares in Japan and China, however, extended gains with the the main Shanghai index vaulting 2.6%, its best jump in seven weeks and taking gains so far this year to 81% and making China the best performing major stock market in the world.
The dollar was stuck near a seven-week low and government bond yields edged higher as portfolio managers kept shifting funds away from safe-haven assets, taking heart from the slew of upbeat earnings reports showing companies starting to bounce back from the deep global recession.
US Federal Reserve chairman Ben Bernanke also reassured investors that the central bank was not about to tighten its ultra-loose monetary policy anytime soon in the first of his two days of Congressional testimony.
But caution is evident.
“We have had a pretty good run-up, and any attempts to rally further would be met by profit taking,” said Ben Potter, a research analyst at IG Markets Ltd in Sydney.
Investors have tended to look past some of the negatives from the earnings season, such as declining revenue, to focus on the better-than-expected profits and positive outlooks due in part to aggressive cost-cutting.
Apple Inc. was the latest firm to post surprisingly healthy profits on strong sales of Mac computers and iPhones, giving its stock a lift in after-hours trade that could help the Nasdaq extend its longest winning streak in 12 years.
The MSCI index of Asia-Pacific shares outside Japan lost less than 0.5% after gaining as much earlier in the day to set another high since the market tumult that began last September.
Hong Kong and India were the big regional drags, with losses of more than 1% in their benchmark indexes.
Upward earnings revisions had helped sentiment before profit-taking set in. According to Thomson Reuters data, the one-month change in earnings estimates one-year ahead on the MSCI regional gauge outside of Japan is running at 1.53%, the highest in three years.
Asia equity analysts at Credit Suisse AG said the South Korea’s Kospi was among the regional markets seeing the biggest upward revisions to 2009 consensus earnings but said technology shares may not have as much value now as the consumer cyclical, energy and material sectors.
The Kospi rose 0.3%. Shares of LG Electronics Inc. dropped and limited the broader market’s advance, with some investors cashing in on their 75% surge so far this year even after the world’s No. 3 mobile phone maker blew past expectations for second-quarter profit.
The Shanghai Composite outperformed regional peers, helped by a jump in oil and coal shares such as China Petroleum and Chemical Corp. on hopes for positive earnings.
Companies tied to renewable energy such as Wuhan Linuo Solar Energy Group Co. Ltd jumped by the 10% daily limit after Beijing announced long-awaited subsidies for utility-scale solar power projects on Tuesday.
Japan’s Nikkei gained 0.7%, with shares of semiconductor wafers rising on a report of higher prices.
Australian shares rose 0.4%, extending their rally to a seventh session as economic optimism continued to spur investors, though gains were capped by a bumper capital raising by National Australia Bank Ltd.
“At this point, I think most people are expecting an economic recovery. The issue now is just whether they think it will happen quickly or gradually,” said Tomomi Yamashita, a fund manager at Shinkin Asset Management in Tokyo.
The boost to risky assets has made investors more comfortable holding corporate debt, driving spreads on benchmark credit indexes to their narrowest levels since the collapse of Lehman Brothers Holdings Inc. last September.
Asia’s benchmark iTraxx index of high-grade corporate credit was quoted at a mid-point of 148 basis points by inter-dealer broker GFI, its tightest level since August and well off this year’s peak near 465 basis points in March. One basis points is a hundredth of a percentage point.
In currencies, the dollar index was little changed around 78.900 after extending its slide the previous day to a seven-week low of 78.591. The euro dipped 0.1% to $1.42 (Rs69.586) but held near a one-month high struck on Tuesday.
In bonds, US treasuries surrendered some of their gains from the previous day when Bernanke’s caution on the outlook sparked a strong rally that dragged yields down from a one-month high. Benchmark 10-year notes shed 8/32 in price to yield 3.511%, up 3 basis points from late US trade.
Oil fell below $65 a barrel after data showing an unexpected rise in the US crude stocks suggested demand in the world’s top energy consumer was still weak.
Gold prices edged some $3 lower after the world’s largest bullion-backed exchange-traded fund recorded a further outflow. The fund, New York’s SPDR Gold Trust, has sold nearly 39 tonnes of gold back onto the market in the last four weeks, equal to almost 3.5% of its total holdings.
Elaine Lies in Tokyo and Sonali Paul in Sydney contributed to this story.