The performance of Asian stocks was mixed today as U.S. data releases painted a gloomy picture for the global economic outlook. Housing starts showed a 5% m/m decline in June 2010 driven by multi-family housing units. While single-family starts showed a smaller decline of 0.7% m/m, the decline in May was revised downward to show a sharp 18.8% m/m collapse following the expiration of the first-time homebuyers tax credit on April 30. Single-family permits, an indicator of future construction, signal further downside risks in the immediate months; even an eventual stabilization in starts would come at a very low level given that single family starts are a massive 19.3% below last year’s level and over 75% below the peak level of January 2006. Moreover, builder surveys continue to show deterioration in builders’ sales expectations, showing that a near-term rebound in housing construction is highly unlikely. (See RGE Critical Issue: U.S. Residential Investment: Likely to Resume Sluggish Growth in H2)
The MSCI Asia Apex 50 rose 0.06% to 766.80, and the MSCI Asia Pacific Index gained 0.89% to close at 121.76.
In Japan the NIKKEI 225 slid 204.67 points or 2.11% to 9,489.34. Japaninvestor.com expects a rally in the Nikkei 225, but this “trading turn” is dependent on the next weak phase in JPY and by U.S. treasury and JGB yields. Continued news of slowing GDP growth and economic activity in Japan has already been discounted, while the JPY will weaken once Japanese institutions become more comfortable with Euro sovereign risk and overcome fears of a double dip recession. (See RGE Critical Issue: What Are the Prospects for Japan’s Stock Market in 2010?)
Hong Kong’s Hang Seng Index advanced 0.43% finishing the day at 21549.88.
In China, the Shanghai Composite Index was up 11.52 points or 0.44% closing at 2,638.52. Stress tests will be conducted on Chinese banks in response to the surging home prices associated with the growth in lending in China’s real estate market. Banks have been asked to estimate how a 60% fall in home prices would affect their firms according to a Bloomberg report. These scenarios signal concern among regulators that excessive lending may have created a real estate bubble.
India’s BSE SENSEX 30 climbed 0.57% to 18,217.44. The global context has fueled the performance of Indian equities. Given strong GDP growth and solid earnings reports, investors have exhibited optimism towards India, but global uncertainty and bouts between risk-seeking and risk aversion cause analysts to expect volatility for Indian equities. (See RGE Critical Issue: India’s Stock Market: Will Global Cues Counteract Domestic Fundamentals?)
In Seoul, the KRX 100 closed at 3,769.44 after falling 0.14%.
Australia’s S&P/ASX 200 finished the day at 4,542.10, losing 29.50 points or 0.65%.
While the Aussie dollar, kiwi, and yen weakened against the dollar, the rupee and rupiah strengthened against the dollar.
The yields for 10-year sovereign bonds continued to fall throughout the region. However, yields increased in China and Hong Kong, rising 0.3 bps.
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