Chinese stocks edge higher, but sentiment remains fragile in Asia

Sydney — Chinese shares pulled ahead on Tuesday after Beijing confirmed it was still in trade talks with the US, although overall sentiment remained fragile in Asia as the pound wallowed near 20-month lows on over a Brexit deal.

Indian stocks and the rupee were among the worst hit as the nation’s central bank governor resigned in a shock move that rattled investors. The country’s ruling Bharatiya Janata Party was also trailing in vote count in three big heartland states in a setback for prime minister Narendra Modi.

The broader NSE share index tumbled 1.3% while the rupee dropped 1.5% and bonds sold off.

Adding to the gloom in markets, British Prime Minister Theresa May abruptly postponed a parliamentary vote on her Brexit agreement on Monday, a move that hit risk assets globally and sent the pound spiralling down to $1.2505.

Disappointing data from major economies including China and Japan have also fanned worry about corporate earnings and factory output, with the China-US trade battle clouding the outlook for world growth.

These uncertainties have put the brakes on equities this year, with MSCI’s broadest index of Asia-Pacific shares outside Japan skidding more than 16% after surging 33.5% in 2017.

“We see a slowdown in global growth and corporate earnings in 2019,” Richard Turnill, global chief investment strategist for Blackrock wrote in an outlook report.

“The end game is nigh for Brexit. We see odds of a no-deal exit in March as low, but expect a bumpy road ahead. A second referendum is not impossible.”

The MSCI ex-Japan index was last down 0.1%, languishing near a three-week trough.

Japan’s Nikkei reversed early gains on Tuesday to be down 0.3% and Hong Kong’s Hang Seng index eased 0.1%.

Chinese shares were a rare bright spot on news the country’s vice-premier Liu He spoke with US treasury secretary Steven Mnuchin and trade representative Robert Lighthizer, exchanging views on pushing forward the next stage of trade talks.

Chinese equities opened in the positive territory and the blue-chip index was last up 0.3%. Australian shares gained 0.3% while the Aussie dollar bounced too.

Yet the gains were tentative as markets fretted over the prospects for a lasting resolution to a trade dispute that has turned increasingly bitter in the past several months.

“Remember this isn’t the first time these backroom negotiations have tangled a carrot in front of the markets,” said Stephen Innes, head of Asia-Pacific trading for Oanda.

“And while I view this development as positively significant in the broader context, a trade war is far from over.”

Bear vibe

In a global outlook note released late on Monday, Bank of America Merrill Lynch forecast more volatility in 2019 with modest gains in equities, a weaker dollar, widening credit spreads, and a flattening to inverted yield curve.

“The bear market vibe at the end of 2018 is expected to continue, with asset prices finding their lows in the first half of 2019 once rate expectations peak and global earnings expectations trough,” it said.

In currencies, sterling slumped below important chart support around $1.26 on May’s delayed Brexit vote. With the EU refusing to renegotiate the deal legislators doubted her chances of winning big changes.

It was last at $1.2581, up 0.2%.