Asian stocks rebound after upbeat China trade data

Thursday, 9 March 2017 00:00 - - {{hitsCtrl.values.hits}}

Hong Kong (Reuters): Asian stocks erased early losses and edged higher on Wednesday as strong China trade data bolstered bets of a recovering global economy, though gains were capped by caution ahead of a widely expected US interest rate hike next week.

China’s imports in February grew 44.7% from a year earlier on a yuan-denominated basis, accelerating from the previous month and leading to a rare trade deficit for the country. Exports rose 4.2%.

That pushed the MSCI’s broadest index of Asia-Pacific shares outside Japan up by a quarter of a%, putting it on track for a third consecutive day of gains. Mainland and Hong Kong stocks led gainers.

“We suspect that this largely reflects the boost to import values from the recent jump in commodity price inflation, but it also suggests that domestic demand remains resilient,” Julian Evans-Pritchard at Capital Economics said.

The strong trade data reinforced a growing view that economic activity in China and globally picked up in the first two months of the year. US dollar-denominated trade figures from China were expected later in the day.

On Tuesday, key exporter Taiwan reported solid shipments for the first two months of 2017 while Japan GDP data for the December quarter was revised higher thanks to increased capex spending.

The Federal Reserve has a policy meeting on 14-15 March and markets have quickly ratcheted up bets of a rate hike at the meeting after recent hawkish comments by US policymakers.

Investors have rushed to buy stocks and emerging market debt this year as they had previously expected the Fed to raise rates only gradually and as recent data from Asia such as trade have surprised on the upside, cementing the view of recovering global momentum.

But with valuations nearing the top of their historical trading ranges, some analysts are predicting investors will turn increasingly cautious.

“While the global economy appears healthier, trade protectionism concerns remain well and truly alive and the situation is becoming more complex,” said Philip Wee, a Singapore-based currency strategist at DBS.

Asian stocks remain cheaper versus their US counterparts but they are approaching the upper end of a historical trading band on a price-to-earnings basis, according to Thomson Reuters data.

Hong Kong stocks rose 0.5% propped up by the services sector and extended inflows from the Chinese mainland. Inflows into Hong Kong stocks from China via two stock connect schemes have crossed the $ 7 billion mark so far this year, outpacing ETF and active flows, Goldman Sachs said.

Bond markets are also scenting a rate hike around the corner, with 10-year US Treasury yields poised to break out of a three-month trading range. On Wednesday, it was at 2.54%, compared with 2.49% on Friday.