Asian stocks set for record-breaking quarter
As Asian stock markets teeter towards the end of a stellar quarter, a resurgent dollar has pushed the yen to a four-decade low and is heading for a fourth straight quarter of gains.
Japan’s Nikkei, which remained stable in early trading on Tuesday, is expected to post a record rise of more than 36 percent in the quarter.
South Korea’s chipmaker-focused KOSPI fell one percent, but was expected to more than double year-to-date in the second quarter, an eye-popping gain of almost 65 percent.
The oil market’s concerns about the war have faded from memory, with benchmark Brent crude futures at pre-war levels of US$72.49 ($105.34) per barrel, although the temporary ceasefire remained tense.
“The fact that oil prices are now falling reinforces our view of more trend-like growth globally versus the sub-trend we were considering a few months ago, and also fuels the better earnings story,” said J.P. strategist Kerry Craig. Morgan Asset Management in Melbourne.
Wall Street indexes rose overnight and futures were flat on the Asian morning. The dollar is headed for a quarterly rise thanks to U.S. economic strength and a notable repricing of the U.S. interest rate outlook, which has shifted from cuts to hikes due to inflationary pressures.
The dollar’s rise sent gold to its biggest quarterly decline in more than a decade, while the yen touched its lowest level in four decades at 162.41 per dollar in Asian trading, making traders nervous about possible intervention by Japan.
Japanese Finance Minister Satsuki Katayama said authorities were ready to respond appropriately at any time.
The dollar index rose 1.3 percent this quarter, but this week the euro regained the $1.14 chart level and the next moves will likely depend on U.S. employment data due to be released on Thursday due to Friday’s holiday, and Federal Reserve Governor Kevin Warsh’s comments on Wednesday.
Chinese manufacturing expanded in June thanks to high-tech exports, according to figures on Tuesday, while European inflation, US consumer confidence and job openings highlight the pre-session data schedule.
In Asia, benchmark Taiwan is poised for a more than 40 percent increase this quarter, while other regions are failing to keep pace with semiconductor-led markets.
Hong Kong’s Hang Seng index was mostly flat on Tuesday, a notable laggard as it fell 7.5 percent on a quarterly basis.
The behavior of major investors in the record quarter has been unusual, as the increased index weighting of Asia’s major chipmakers pushed foreigners into higher sales as they rebalanced their portfolios and worried about diversification.
According to BNY, a net of US$17.3 billion ($25.1 billion) came out of South Korean equities during the year.
“The gap between returns and flows fits a broader pattern in Asia’s tech-heavy markets: strong performance triggers rebalancing and profit-taking, not new institutional buying,” said BNY macro strategist Geoff Yu.
Solid gains in Europe’s STOXX index, which is expected to rise 9 percent in the quarter, and China’s leading CSI300 index, which is up nearly 10 percent this quarter, are attracting investors’ attention.
“Some of the concerns investors have about how much exposure they have to technology… (they have) are looking for other themes like defence, renewable energy and how they are looking to build stronger diversification into their portfolios,” said Craig of JP Morgan Asset Management.
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