Asian equities' decline belie optimism in markets today

Author: Justin Low | Category: News

Asian stocks are softer as they play catch up to overnight losses in Wall St

E-minis 14-05
  • Nikkei -0.7%
  • Shanghai Composite -0.4%
  • Hang Seng -1.6%
Meanwhile, we're seeing US equity futures higher by 0.5% while Treasury yields are also up on the day with 10-year yields higher by 1.4 bps to 2.415% currently. So, despite the losses seen in Asian trading so far, it isn't giving a true impression of the optimism building in markets ahead of European trading.

The exception to the losses today is the Hang Seng index, which is down by 1.6% now at the break, this is because it is playing two days' worth of catch up to losses as Hong Kong markets were closed yesterday.

One of the recurring themes last year in markets was the ability of risk assets to rebound swiftly and strongly after each and every setback from the US-China trade rhetoric. Now, that theme will be put to the test once again but this time around, investors will also have to grasp the implications of a trade stalemate towards a slowing global economy.

So, that will be something to watch out for. Greed vs Fear - the never ending battle.

A bright spot for Asian equities and risk in general though is that the selling is looking to be rather stretched now, if you go by the 14-day RSI:

MSCI 14-05
But I reckon, the bigger question will be, do investors value EM and Asian equities as being cheap despite the decline in the past week? At some point, you'd expect a decent retracement but given ongoing trade tensions, I reckon it'll be tough for equities to pull off a sustainable rally over the next few weeks at least.

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