Asian stocks up, investors pin hopes on US earnings
Tuesday, 13 July 2010
SYDNEY, July 12 (Reuters): Asian stocks rose Monday as investors counted on the start of the US earnings season this week to show firms were reaping strong profits and that the world's economic recovery was not losing steam.
Investors largely shrugged off the chance that Japan, the world's No 2 economy, may be trapped in a policy gridlock after the ruling government lost a key poll on Sunday. Both the yen and Tokyo's Nikkei average dipped but investors said the election result was largely priced in and would have only a limited impact.
The MSCI index of Asia-Pacific stocks outside Japan rose 0.3 per cent, adding on to its 4.8 per cent gain last week. That had been its best week in over seven months. Financial bookmakers expected European shares to be buoyant as well, with stocks in Britain, Germany and France seen rising 0.5 to 0.6 per cent.
"US earnings will be reasonably strong, but the key question is can consumer demand be strong enough to keep earnings growth sustainable?" said Mark Konyn, who oversees about $11 billion as Asia-Pacific chief executive of RCM in Hong Kong.
Indeed, Thomson Reuters data suggested upcoming US corporate results should have a decent showing. Earnings on the S&P 500 are seen to have grown 27 per cent in the second quarter.
That is up from previous readings in the past three quarters, which hovered around 22 per cent.
But the outlook for US consumer demand is less bright. US retail sales data out Wednesday is expected to show spending easing 0.2 per cent in June. Sluggish US economic activity contrasts sharply with that in China, where trade data showed over the weekend that the world's No 3 economy was growing rapidly, with exports surging 44 per cent in June from a ago.
But even with China's economy charging forward, there is no missing investor anxiety that the world economy may still be on shaky ground. For the year, the MSCI Asia-Pacific ex-Japan stock index has shed 4.7 per cent, with the bulk of heavy selling done in May during the throes of Greece's debt crisis.
In contrast, the HSBC Asia dollar bond index is up 6.2 per cent for the year, indicating investors preferred buying safe-haven assets. Data from fund tracker EPFR showed a similar trend.
Over $11 billion of net outflows were drained from global equity funds in the first week of July.
Money market funds, which are deemed to be safer, had the biggest inflows in 18 months. Oil was down 0.5 per cent at $75.69 having hit a near two week high on Friday, while gold prices dipped but still held above $1,200 an ounce.
In Japan, the Nikkei stock index vacillated between gains and losses Monday. Yet moves either way were modest, suggesting investors were not particularly worried about the government's latest setback.
Japan's ruling coalition government, under Prime Minister Naoto Kan, had lost an Upper House election Sunday that could prevent it from passing laws smoothly in future.
With Japan already saddled with one of the world's largest public debts by proportion of its economy, many analysts had said Sunday's loss threatens Kan's job and puts into doubt the government's ability to urgently cut debt.
Investors largely shrugged off the chance that Japan, the world's No 2 economy, may be trapped in a policy gridlock after the ruling government lost a key poll on Sunday. Both the yen and Tokyo's Nikkei average dipped but investors said the election result was largely priced in and would have only a limited impact.
The MSCI index of Asia-Pacific stocks outside Japan rose 0.3 per cent, adding on to its 4.8 per cent gain last week. That had been its best week in over seven months. Financial bookmakers expected European shares to be buoyant as well, with stocks in Britain, Germany and France seen rising 0.5 to 0.6 per cent.
"US earnings will be reasonably strong, but the key question is can consumer demand be strong enough to keep earnings growth sustainable?" said Mark Konyn, who oversees about $11 billion as Asia-Pacific chief executive of RCM in Hong Kong.
Indeed, Thomson Reuters data suggested upcoming US corporate results should have a decent showing. Earnings on the S&P 500 are seen to have grown 27 per cent in the second quarter.
That is up from previous readings in the past three quarters, which hovered around 22 per cent.
But the outlook for US consumer demand is less bright. US retail sales data out Wednesday is expected to show spending easing 0.2 per cent in June. Sluggish US economic activity contrasts sharply with that in China, where trade data showed over the weekend that the world's No 3 economy was growing rapidly, with exports surging 44 per cent in June from a ago.
But even with China's economy charging forward, there is no missing investor anxiety that the world economy may still be on shaky ground. For the year, the MSCI Asia-Pacific ex-Japan stock index has shed 4.7 per cent, with the bulk of heavy selling done in May during the throes of Greece's debt crisis.
In contrast, the HSBC Asia dollar bond index is up 6.2 per cent for the year, indicating investors preferred buying safe-haven assets. Data from fund tracker EPFR showed a similar trend.
Over $11 billion of net outflows were drained from global equity funds in the first week of July.
Money market funds, which are deemed to be safer, had the biggest inflows in 18 months. Oil was down 0.5 per cent at $75.69 having hit a near two week high on Friday, while gold prices dipped but still held above $1,200 an ounce.
In Japan, the Nikkei stock index vacillated between gains and losses Monday. Yet moves either way were modest, suggesting investors were not particularly worried about the government's latest setback.
Japan's ruling coalition government, under Prime Minister Naoto Kan, had lost an Upper House election Sunday that could prevent it from passing laws smoothly in future.
With Japan already saddled with one of the world's largest public debts by proportion of its economy, many analysts had said Sunday's loss threatens Kan's job and puts into doubt the government's ability to urgently cut debt.