Asia: Markets mixed as profit-taking offsets lockdown easing

[HONG KONG] Asian equities were mixed on Tuesday as long-running optimism over the reopening of economies was offset by profit-taking following a week-long rally across markets.

Sydney and Hong Kong were the standout performers, with traders picking up the baton from Wall Street where the Nasdaq ended at a record high and the S&P 500 wiped out all its losses for the year.

However, there were warnings that the gains - which have seen markets soar from their March trough thanks to the lockdown easing and massive stimulus - may have gone too far, and could be derailed by any number of issues.

Still, for now, the mood is upbeat with governments slowly removing restrictions that were put in place to stop the spread of Covid-19 but strangled economies and are widely expected to have caused a world recession.

In early trade, Hong Kong was up more than one per cent, while Sydney jumped more than two per cent as investors there returned from an extended weekend break to play catch-up with Monday's regional advance.

Shanghai gained 0.4 per cent and Taipei added 0.1 per cent, while Jakarta jumped 0.9 per cent.

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But profit-taking dragged Tokyo 0.6 per cent lower by lunch, while Seoul dipped 0.2 per cent with geopolitical concerns re-emerging after North Korea said it was severing all official communication links with the South.

Wellington slipped 1.7 per cent after racking up gains of more than three per cent on Monday, while Manila was off 0.4 per cent.

LONG RECOVERY

While traders continue to buy into world markets on hopes the economy will bounce back, analysts urged some caution.

"The good news is that this shows central banks' effort to stabilise the market have worked," Tai Hui, at JP Morgan Asset Management, said in a note.

"The more worrying news is that global economic activity is far from where we were before the pandemic. The current risk rally is driven by investors' belief that the worst of this recession is behind us, which we agree with."

But he warned: "The road to full recovery is long and will require medical solutions including a widely distributed vaccine or efficient and accurate testing. The threat of a second wave of infections has not been eliminated."

He added that there were also risks of renewal of the China-US trade war as well as the impact of mass unemployment and bankruptcies.

Oil markets remain supported by expectations for a pick-up in demand as lockdowns are eased, as well as huge output cuts by leading producers led by Saudi Arabia and Russia.

However, prices took a knock Monday after Riyadh said it would not continue beyond this month with additional, voluntary output reductions it had been implementing alongside the main production deal.

AxiCorp's Stephen Innes suggested the recent run-up in crude over the past few weeks could begin to plateau.

"While equity markets are looking ahead to a recovery in corporate profits in 2021, energy markets do not have the luxury to be as forward-looking," he said in a commentary.

"Oil demand remains weak in the US, and big states that drive the US economy need to open with a driving boom. But ultimately, without the return of travel between the world's three largest regions - the US, the EU, and China - demand will be slow to pick up."

In Hong Kong, trading in Cathay Pacific - and its two biggest shareholders Air China and Swire - was suspended ahead of an expected announcement. Neither Cathay nor Swire gave a reason for the suspension.

AFP