IG Markets - Afternoon thoughts

Across Asia, regional markets are mixed despite mostly weaker leads from the US and fears over further tightening measures in China. The Kospi and Nikkei 225 are the worst performers, down 1% and 0.9% respectively while the Hang Seng is 0.1% lower. On the upside, the Shanghai Composite has recovered a large chunk of yesterday’s decline to be trading 1.9% stronger.

In Australia, the ASX 200 is currently 0.5% weaker at 4757, but well off its earlier lows of 4740. Continuing concerns that more tightening measure will be needed to reign in Chinese growth and curb inflationary pressures are clearly weighing on the materials and energy sectors. On the flip side, the heavyweight financial sector is benefitting from a strong result from Morgan Stanley overnight which has restored some positive sentiment towards the sector.

After the bearish overnight leads, futures were calling the market to open 0.2% weaker. Instead, there was surprising strength, with most sectors easily in the black. However, the gains didn’t last long as the bears took control and quickly sold it down. With fears over further Chinese tightening escalating amid reports of a Chinese New Year’s rate hike, the market was far from happy. Everyone was eagerly awaiting Shanghai’s reaction to the speculation.

Around midday the Shanghai opened firmer and has relieved some of the concerns, although the ASX 200 is still firmly in negative territory.

Looking at the bigger picture, we’re seeing ‘safe haven’ money flowing from precious metals as the recovery in the US continues to gather economic momentum and fears in the Euro zone wane. Our hunch is that that money is destined for equity markets as investors look to increase their exposure to riskier assets. This should ensure that any pullbacks are shallow, short-lived and well bought.

ends

© Scoop Media