US-China Relations

Asian Shares Weaker on COVID-19 Flare-Up Fears, Tense U.S.-China Relations

The major Asia-Pacific stock indexes finished the week lower with the exception being the Australian market which posted a marginal gain. Stocks were primarily weighed down as deteriorating U.S.-China relations added to uncertainties over how fast economies can recover as they start to emerge from lockdowns.

Worries about confrontations between the two largest economies in the world eclipsed Chinese economic data, which showed its economy is gradually recovering from the shock of the coronavirus outbreak, according to Reuters.

Investors also said that optimism from the reopening of economies has also been marred by fears of a second wave of infections, encouraging profit taking. Additionally, Fed Chairman Powell’s warning of a possible deeper and longer recession without additional fiscal stimulus dampened risk appetite.

Last week, Japan’s Nikkei 225 Index settled at 20037.47, down 141.62 or -0.70%. South Korea’s KOSPI finished at 1927.28, down 18.54 or -0.95% and Hong Kong’s Hang Seng closed at 23797.47, down 432.70 or -1.79%.

China’s Shanghai Index settled at 2868.46, down 26.88 or -0.93% and Australia’s S&P/ASX 200 Index finished at 5404.80, up 13.70 or +0.25%.

Analysts Worried about Rising U.S.-China Tensions

While many analysts regarded last week’s weakness as a natural correction after a spectacular rally since mid-March, they have become increasingly worried about rising U.S.-China tensions. U.S. President Donald Trump blames China for its handling of the COVID-19 disease that has killed more than 85,000 American, according to Reuters.

Trump signaled a further deterioration of his relationship with China by saying he has no interest in speaking to President Xi Jinping right now.

The President went on to suggest he could even cut ties with the world’s second-largest economy, a day after the U.S. federal pension fund delayed investment in Chinese shares in the wake of pressure from the White House.

The move fanned fears the confrontation between Washington and Beijing could escalate beyond trade to finance and other areas.

On Friday, the Trump administration moved to block global chip supplies to blacklisted telecoms equipment company Huawei Technologies, spurring fears of Chinese retaliation and hammering shares of U.S. producers of chipmaking equipment.

Chinese Economic Data Mixed

China’s inflation for April released by the country’s National Bureau of Statistics missed expectations. The consumer price index for April rose 3.3% year-on-year, versus expectations of a 3.7% increase in a Reuters poll. Meanwhile, China’s producer price index for April declined 3.1% year-on-year, as compared to a 2.6% fall expected in a Reuters poll.

China’s industrial output in April rose 3.9% from a year earlier, exceeding expectations for a 1.5% rise and expanding for the first time this year as its economy slowly emerges from its coronavirus lockdown. But retail sales remained weak as unemployment rose.

Toyota Operating Income Declines

In corporate earnings, Japanese automaker Toyota posted a 1% year-on-year decrease in its operating income for the 2020 fiscal year. In particular, the firm also forecast a 79.5% year-on-year plunge in its operating income for the 2021 fiscal year.

Foreign Investors Sold Japanese Stocks Every Week in Past 3 Months

Foreign investors sold a net 133.9 billion yen ($1.25 billion) of Tokyo shares last week, data from Japan Exchange Group showed on Thursday, marking the 13th consecutive week of selling, the longest on record, Reuters reported.

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.