Source : AI

Stock markets across Asia closed mixed on Monday, August 22nd, as China cut a key short-term interest rate but left another rate unchanged. The move came as global markets continue to be roiled by recession fears amid rising inflation and interest rates.

The People’s Bank of China lowered its one-year loan prime rateh (LPR) by 10 basis points to 3.45%, according to China’s state media. The one-year LPR, which banks use to price loans to companies, is now at its lowest level since early 2020.

However, China’s central bank kept its five-year LPR steady at 4.45%. The five-year rate influences mortgage rates nationwide and serves as a benchmark for corporate loans.

The divergent moves surprised economists. A Reuters poll of 35 analysts had predicted cuts to both LPR rates. The mismatch highlights the difficulty Beijing faces in trying to revive an economy hurt by its strict zero-COVID policies while also avoiding further pain in its embattled property sector.

“The decision reflects policymakers’ fine balancing act between supporting growth and reducing financial risks,” said Bruce Pang, chief economist at Jones Lang LaSalle Inc.

Hong Kong Leads Regional Declines

The surprise move by China’s central bank failed to boost Asian markets on Monday. Hong Kong’s Hang Seng Index fell 1.82%, shedding 327 points to close at 17,523. Tencent Holdings and Alibaba led declines among Chinese tech giants listed in the city.

Mainland Chinese markets also slumped, with the benchmark Shanghai Composite Index dropping 1.24% and the CSI 300 index falling 1.44% to its lowest level since November. Real estate and tech stocks drove the declines.

Japan’s Nikkei managed to close higher, reversing earlier losses to add 0.32% and finish at 31,565. The Topix index added 0.24%. Toyota Motors and SoftBank Group gained while Fast Retailing fell.

Wall Street Benchmark Indexes Post Weekly Losses

The mixed showing in Asia followed losses last week on Wall Street that left the S&P 500 and Nasdaq with their third straight weekly declines, a losing streak not seen in months.

Surging inflation, rising interest rates, and recession fears have buffeted U.S. markets. The Federal Reserve has been aggressively hiking rates to combat inflation at 40-year highs, sparking worries it could inadvertently tip the economy into a downturn.

For the week, the Dow Jones Industrial Average eked out a 0.2% gain. But the S&P 500 slipped 0.2%, and the tech-heavy Nasdaq tumbled 1.9%.

“Markets globally continue to price in slower growth accompanied by inflation remaining well above central bank targets,” said David Chao, global market strategist for Asia Pacific ex-Japan at Invesco.

Australian Shares Drop to 6-Week Low

In Australia on Monday, the S&P/ASX 200 fell 0.46% to close at its lowest level since July 11. The index dropped 32 points to finish at 7,115.5, pulled down by declines in healthcare and technology. CSL Ltd was among the major drags.

But South Korea’s Kospi managed to add 0.17%, boosted by auto stocks like Hyundai Motor and Kia Corp. The index snapped a six-day losing streak to close at 2,508.

Thailand GDP Growth Disappoints

Elsewhere, data released on Monday showed Thailand’s economic growth slowed sharply in the second quarter. Gross domestic product grew just 1.8% in Q2 from a year earlier, down from 2.6% growth in Q1 and well below forecasts for 3.1% growth.

On a quarterly basis, Thailand’s economy expanded just 0.2% in Q2. The weak data highlights the impact of high inflation, supply chain issues and lower tourist arrivals.

Reuters Poll Shows Economists Expected Dual Rate Cuts in China

Economists surveyed by Reuters had widely predicted that China’s central bank would cut both its one-year and five-year LPR rates on Monday.

All 35 participants polled Aug. 15–19 said they expected a reduction in the one-year LPR rate, with the median forecast for a 10 basis point cut to 3.45%.

All but one respondent also predicted a five-year LPR cut, with the median forecast for a 5 basis point reduction to 4.15%.

As it turned out, only the one-year rate was lowered.

“The unchanged five-year LPR came as a surprise,” said Sheana Yue, China economist at Capital Economics. “We had thought that the five-year rate was in need of a nudge down to support the housing market.”

PBOC Slashes MLF Rate, Signals Further Easing

The divergence in LPR moves came after the People’s Bank of China unexpectedly cut its medium-term lending facility (MLF) rate last week for the first time since early 2020.

On Aug. 15, the PBOC lowered the one-year MLF rate by 10 basis points to 2.75%. It also cut the seven-day reverse repurchase rate to 1.8% from 1.9%.

The surprise MLF cut signaled the central bank is stepping up monetary easing measures to prop up the world’s second-largest economy amid a property crisis and Covid lockdowns.

ING economists said the one-year LPR cut “is an extension of the easing stance the PBOC telegraphed through the medium term lending facility (MLF) last week.”

But ANZ analysts said the dual moves suggest the PBOC wants to aid corporate funding without inflating a property bubble.

“The asymmetry paves the way for further differentiation of the PBOC’s monetary policy easing path for the rest of the year,” they wrote.

Economists See Aggressive Fed Rate Hikes Even as Growth Slows

The Federal Reserve faces an increasingly difficult balancing act as it aggressively hikes interest rates to combat stubbornly high inflation while also trying to avoid tipping the U.S. economy into recession.

Even as growth slows, economists overwhelmingly expect the Fed to deliver another large, 75-basis point rate hike at its September policy meeting. It would be the third straight increase of that size, something the central bank has not done since 1994.

Investors will look to a key speech from Fed Chairman Jerome Powell at the annual Jackson Hole symposium on Friday for any new clues about the central bank’s policy path.

In a June appearance before Congress, Powell reiterated the Fed’s commitment to bringing prices under control even if it means economic pain. He said another “unusually large” rate hike could be appropriate at the next policy meeting.

“The market apparently is still underestimating Powell’s resoluteness to bring inflation down regardless of the state of the economy,” said George Ball, chairman of Sanders Morris Harris.

CNBC Analyst: Equity Valuations Too High Given Global Crises

David Roche, president and global strategist at Independent Strategy, said stock markets remain buoyant because investors are complacent despite ongoing economic crises globally.

In a note published by CNBC Pro on Friday, Roche warned the disconnect between geopolitics and equities will not last. He said markets were overly optimistic given fundamental headwinds.

“The economy is slowing very rapidly, inflation is at a 40-year high, interest rates are rising, profits are falling, the war in Ukraine is ongoing, as are the effects of the pandemic,” Roche told CNBC.

“And yet the S&P 500 is down just 12 percent from its peak. This is because people are stupid,” he said bluntly.

Roche said he preferred to own long-dated Treasuries rather than stocks in the current environment of rising recession risks.

China’s Regulators Pledge to Resolve Local Debt Risks

Chinese regulators held a meeting Friday to discuss resolving financial risks, the central bank said in a statement Sunday.

Attendees focused on providing financing support to contain local government debt risks. They also talked about properly adjusting real estate loan policies, according to the People’s Bank of China.

The meeting reflected Beijing’s 2022 overhaul of its regulatory structure. New heads of the central bank, banking regulator, and other agencies are setting policy.

Local governments in China are grappling with heavy debt burdens and reduced revenue, while the property sector has been hit hard by a buyers’ strike.

The authorities have unveiled measures to ease a cash crunch among developers. But analysts say more forceful stimulus is needed to revive housing demand.

BoA Strategist Highlights ‘Triple Momentum’ Stocks

Bank of America published a list of stocks with positive momentum in earnings estimates, price performance, and news sentiment.

The bank’s analysts screened for companies with “triple momentum” across those three areas. The list included Uber Technologies, Enphase Energy, and more than 10 other stocks.

“We think stocks with positive revisions momentum, price momentum and news momentum are well positioned to surprise on the upside,” the strategists wrote.

Bank of America has a Buy rating on Uber. It said the ride-sharing firm posted better than expected Q2 results and has multiple paths to boost profits.

China Value Funds Outperform as Growth Stocks Stumble

Equity funds focused on Chinese value stocks have held up better than their growth-oriented peers in 2022’s down market, according to investment research firm Morningstar.

The Shanghai Composite entered a bear market in March and the Hang Seng Index officially entered bear territory in September. As China’s economy slows, investors have rotated into value stocks with stable cash flows.

“Concerns over China’s economic growth and the geopolitics in the last year or so has also led to a [preference] for Chinese companies that can deliver stable cash flows,” said Morningstar’s Claire Liang.

Top-performing China funds this year include strategies run by Invesco, JPMorgan, and Baring Asset Management.

Goldman Recommends EV Stocks That Can Win Despite Competition

Surging gas prices have sparked booming demand for electric vehicles, but the industry faces cutthroat competition, shrinking government subsidies and tightening profit margins.

In a recent note, Goldman Sachs auto analysts picked six stocks capable of “prevailing in an era of intense competition.” Their buy-rated names included Tesla, General Motors, and Chinese EV makers Li Auto and Nio.

Goldman said those automakers have strong technology, brand power, and financial resources to compete long term.