Asia: Stocks set to end week on high note, outlook wary

[HONG KONG] Asian stocks edged up on Friday and looked likely to end the week with tiny gains, although the outlook remained grim as investors continued dumping emerging market assets as their growth expectations faded. The dollar crept higher.

While Thursday's private and official surveys of China's factory sector weren't quite as bad as some had feared, a number pointed out the broader economic outlook for the region remained bleak.

"The difference between new orders and inventories is a good leading indicator for industrial production in Asia," said Frederic Neumann, co-head of Asian economics research at HSBC in Hong Kong. "Unfortunately, this signals a further deceleration of activity into the year-end." MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 per cent, and was on track for a weekly gain of 1.2 per cent. It posted its poorest quarterly performance with a decline of 17 per cent, the worst since 2011.

Hong Kong's shares led gainer markets with the index rising 2.1 per cent in opening trades. Japan's Nikkei Average fell 0.6 per cent. China's markets will be closed until Oct 8 for the National Golden Week holidays.

In line with falling economic activity, earnings growth expectations for the remainder of the year for MSCI Asia-ex Japan have been slashed to their lowest levels this year, according to Thomson Reuters data.

Net non-resident portfolio flows to emerging markets were negative for the third consecutive month in September, with investors estimated to have pulled out US$40 billion worth of funds in the third quarter, making it the worst since December 2008, according to the Institute of International Finance.

Nowhere was this flight from emerging market assets more evident than in the bond markets with a spread measuring the gap between US high yield and investment grade debt at its highest level in more than three years at 430 basis points, according to Thomson Reuters data.

In foreign exchange markets, the dollar is holding its own against other currencies before a key US jobs report that could determine the chances of the Federal Reserve raising interest rates before year-end.

Economists expect US nonfarm payrolls, due later in the global day, to show that employers added 203,000 jobs in September, according to a Reuters poll. "Fed chair Yellen has already mentioned that labour conditions are improving and hinted that developments overseas, notably in China, and prices, were chief concerns," said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo. "A very bullish report would of course have a big impact. But the Fed may not make its rates decision on employment data alone," he said.

REUTERS