Risk off sentiment reigns

Risk sentiments were in short supply during the Asian session on Wednesday, pretty much mirroring the overnight risk-off feel, as traders grasped for directions.

Apple logo
Source: Bloomberg

Some pointed towards the selloff in Apple share prices as the cause after announcing earnings, which beat estimates.

While results were strong, markets were rather disappointed with the Q4 profits outlook. It’s quite incredible how Apple’s earnings release and forecast affect market sentiments and is quite the omen of discretionary consumption.

Perhaps the vast linkages, especially in terms of supply chains, with Asia, meant that its fortunes are intertwined with that of Asian markets. This is particularly true for Asian companies who have substantial businesses with the technology giant. The weakness in Apple, thus, could have spread to Asian shares.

Hong Kong, Taiwan, and South Korean equity indices came under pressure. Elsewhere in north Asia, volatility in China continued to fall and we are seeing sustained signs of stability in the equity markets. Shanghai Composite was relatively flat, while Shenzhen Composite was more active.

It’s interesting though to see how the A50 closed lower for the third-straight day, bringing up a total of eight negative close in the last nine sessions. Nonetheless, volatility in the blue-chip index also tapered off.

There is talk that state buyers are entering the markets in the closing hour to push the close above the previous close. The reason for this is to shore up sentiments, while maintaining a steady beat to the Chinese markets.

If you look at the past 10 sessions, since 8 July, eight had a higher close level compared to the previous day. But if you look at the shorter timeframe, say a 15-min chart, there is no clear indication of a demand boost in the last hour of the trading session.

If this was true, then it suggests that a strategy to buy at the open and sell towards the close could increase your rate of returns. Whatever it is, the trend for Chinese market has firmly shifted to a consolidation mode.

18% of A-shares are still under locked-up, although this is a big improvement from the 50% suspended nearly two weeks ago. This means that it is unlikely we would see a resumption of the sharp rally.

Instead of Chinese stocks, we see compelling plays in the dollar and sterling pound, as the monetary divergence reassert itself. Admittedly, the media blackout to next week’s FOMC may make trades a little more difficult, but over the medium-term horizon, we are likely to see further gains in these currencies, as compared to others.

On the other hand, commodity and antipodean currencies may be feeling more heat, not just from a slump in commodity prices but also from central banks looking to act to support their economies.

Singapore stocks lower

Closer to home, Singapore shares moved lower, dovetailing with regional risk-off mood. The Straits Times Index (STI) slipped below 3370, although the index was kept off the resistance-turned-support level of 3350.

I believed that the recent jump to almost seven-week highs of 3383.56 lacked conviction to push higher, due to a confluence of lack of news flow as well as perennial low interest in Singapore stocks.

Singapore Airlines saw the largest decline, down over 3% as of 4.11pm, as investors were concerned over weaker operating statistics.

The national carrier attributed the decline in overall passenger load factor to weak demand and increasing competition, particularly from Qatar Airways’ aggressive expansion in Europe. Furthermore, the recent run-up may have prompted some traders to book profits ahead of the earnings release.

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