Hong Kong: Asian stocks edged lower on Thursday after an early rally fizzled and investors found few incentives to make long-term bets with economic and corporate profit prospects worsening.
Major European stock markets were expected to open as much as 0.8% higher, according to financial bookmakers, after the pan-European FTSEurofirst 300 index fell for four consecutive sessions.
The yen fell to a three-month low against the US dollar as mounting economic damage and prolonged political uncertainty in Japan ruin the yen’s safe haven reputation and domestic investors continue to pour money into overseas bond markets in search of better returns.
Rising late-maturity US Treasury yields, a decline in gold below $950 an ounce and more stable credit markets have been enticing some investors to look for value in higher-risk assets like equities, especially with valuations so low.
However, regional exports continue to slump amid the global slowdown and corporate earnings prospects are receding rapidly, paralysing many investors.
“There is just too much uncertainty out there,” said Martin Angel, dealer at Patersons Securities in Australia. “It is basically making a lot of people retreat to the sidelines.”
Japan’s Nikkei share average finished nearly unchanged on the day, with the weaker yen not providing any boost to the shares of big exporters like Canon Inc or Sony Corp.
Japanese investors have been increasingly selling domestic equities and splurging on overseas bonds. In the last two weeks, they have sold a net 661 billion yen in Japanese stocks and bought ¥2.594 trillion of foreign bonds, according to data from Japan’s Ministry of Finance.
The MSCI index of Asia-Pacific stocks outside Japan slipped 0.4%, not far from a three-month low on Tuesday.
The regional index has been holding up better in recent weeks than the all-country world equities index amid persistent market turmoil. On a 30-day rolling basis, it has slipped 4.6% compared with the world index, which has fallen 10%.
Earnings expectations for companies in the MSCI Asia-Pacific ex-Japan index have tumbled 9.6% in the last month, the biggest decline since the financial crisis began more than a year ago, according to Thomson Reuters data.
Meanwhile, falling stock prices in the same period have not kept pace with the changing outlook, causing 12-month forward price-to-earnings ratios, a commonly used tool for measuring valutation, to rise a bit.
Hong Kong’s Hang Seng index underperformed the region, falling 0.8% in quiet trade ahead of an expiration of index futures on Thursday.
US stocks struggled for direction overnight, ultimately falling late in the session after US President Barack Obama warned of stricter regulation of Wall Street, language that is almost always interpreted in the market to mean leaner corporate profits.
US banking regulators on Wednesday launched a “stress test” program to assess the largest banks’ ability cope with the possibility of a deeper recession in which the unemployment rate climbs above 10% next year.
Though the scenario was dire, the action offered a modicum of comfort to investors.
However, Sebastien Barbe, a strategist with Calyon in Hong Kong, pointed out the stress tests may not end before October and economic data were only getting worse.
“Whereas the doom and gloom is continuing to unfold in the US and Europe, a devastating shockwave has now reached Asias exporting and manufacturing sectors. This will likely continue to cap the markets in the short term,” he said in a note.
Continued uncertainty has not stopped dealers from unloading their yen. The dollar was up 0.4% to ¥97.77, after touching a 3-month high around ¥97.97 earlier.
The Australian dollar strengthened to a near two-month high against the yen, at ¥63.69.
Gold fell around 0.6% to $945.60, and remained vulnerable to aggressive profit taking after soaring to an 11-month high of $1,005.40 an ounce last week.
Government bond markets were quiet, with the yield of the benchmark 10-year US Treasury note slipping to 2.91% from 2.93%, where it was late in New York. The yield has risen about 70 basis points since the year began.
US crude oil rose 0.5% to $42.70 a barrel after jumping 6% overnight after data showed a larger-than-expected drop in gasoline stocks. Brent crude was up 0.5% to $44.52 a barrel.