Asia: Shares at 9-month highs on inflow bets; US dollar strong

[HONG KONG] Asian stocks climbed to nine-month highs on Thursday, helped by a pickup in capital inflows and a recovery in global oil prices, while the US dollar stood strong on growing bets of a US rate increase as early as September.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.3 per cent, its highest level since October 2015 after earnings overnight helped push both the Dow Jones industrial average and the S&P 500 to record highs. It has gained 10 per cent over the last month.

"Investors are optimistic on the outlook for Asian equities compared to developed markets and despite the looming geopolitical uncertainty, we are advising clients to buy on dips," said a markets strategist at a US bank in Hong Kong. Portfolio inflows to emerging market assets rose to the highest level in nearly three years last week, according to the latest survey by the Institute of International Finance.

Tempering risk appetite, however, was Turkish President Tayyip Erdogan who declared a state of emergency on Wednesday as he widened a crackdown against thousands of members of the security forces, judiciary, civil service and academia after a failed coup.

Bond and stock markets in Malaysia were relatively unruffled after news that the US Justice Department filed lawsuits linked to scandal-ridden state fund 1MDB with the currency hugging well worn ranges.

Leading regional gainers was Japan's Nikkei stock index which rose one per cent, aided by the tailwind of a weaker currency.

In currency markets, the greenback got a boost after influential Fed-watcher Jon Hilsenrath reported that US officials are gaining confidence they can increase interest rates as early as September.

The US dollar rose 0.2 per cent to 107.08 yen after rising as high as 107.460 earlier, its highest since June 7 and returning to levels seen before markets were roiled by Britain's vote last month to exit the European Union.

The US dollar index, which tracks the greenback against a basket of six rival currencies, hit a peak of 97.323 on Wednesday, its highest level since March 10. It was last at 97.06, broadly steady.

The euro was flat on the day at US$1.1021 after notching a near one-month low of US$1.0980 overnight.

The European Central Bank will meet later in the session, and is expected to hold policy steady while perhaps addressing a scarcity of bonds for its 1.7 trillion euro stimulus programme.

"The weakness of the euro provides automatic stimulus to the economy, which means the ECB can afford to wait," wrote Kathy Lien, managing director of FX strategy for BK Asset Management.

"So the potential for an initial short squeeze is high if the central bank stands pat and the outlook thereafter will depend on how strong of a message the ECB sends," she said.

Looking ahead, financial leaders from the world's biggest economies will meet in China this weekend, with Brexit fallout and dwindling policy options to boost global growth expected to dominate talks.

Crude oil extended gains in the Asian session. Brent crude was slightly higher in Asian trading at US$47.35 a barrel, after settling up one per cent, while US crude edged 0.2 per cent higher at US$45.86 after adding 0.7 per cent overnight.

Spot gold edged down 0.1 per cent to US$1,314.08 an ounce after plumbing three-week lows on Wednesday.

REUTERS