As we head into the final trading week of the first half of the year, Asian markets are experiencing a mixed bag of performance across equities, currencies, and bonds. While Asian stocks are generally in decent shape, Chinese markets are struggling to keep up with their regional and global peers.
Chinese stocks have been underperforming this year, with the Shanghai Composite barely in positive territory and experiencing a rough patch in the last month. The recent decline in Chinese markets has been exacerbated by escalating trade tensions between China and the West, as well as capital outflows.
On the other hand, Japanese stocks have seen a strong performance year to date, with a 15% increase in value. However, investors are keeping a close eye on the yen’s exchange rate, as it fell towards 160.00 per dollar last week, prompting concerns of FX intervention by the Bank of Japan.
With the Bank of Japan’s next policy meeting not scheduled until late July, there is speculation that the central bank may need to intervene verbally or directly to prevent further depreciation of the yen. The market will be closely watching the BOJ’s summary of opinions from its June policy meeting for any hints on future intervention strategies.
Despite the overall positive sentiment in Asian markets, the end of the first half may see some investors locking in profits and adjusting their positions. The recent decline in Nvidia shares, after nine consecutive weeks of gains, could be a signal of a potential market correction in the coming weeks.
Barclays analysts believe that the recent selloff in Chinese stocks may be overdone, and they anticipate market-friendly positive surprises from the upcoming Communist Party ‘plenum’. This meeting could potentially serve as a catalyst for a rebound in Chinese markets.
The regional calendar for the week includes key economic data releases from New Zealand, Singapore, and Taiwan. Market participants will be closely monitoring trade figures, inflation rates, and industrial production numbers for insights into the health of the Asian economy.
While Asian markets are generally in good shape, Chinese stocks are facing challenges in catching up with their peers. The ongoing trade tensions and capital outflows are creating headwinds for Chinese markets, while Japanese stocks continue to perform strongly with the specter of FX intervention looming overhead. Investors will be closely watching for market-friendly developments in the coming weeks to gauge the future trajectory of Asian markets.