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Jul 25, 2016

Asian Markets at Close Report on July 25, 2016, by MarketWatch: Asia Stock Rally Cool as Easing Hopes Fade

Chao Deng

Enthusiasm for stocks faded in Asia, with Japan shares flattening after a two-week run-up and markets in Australia and China making fractional gains only.
The Nikkei Stock Average NIK, -0.04%  finished down less than 0.1% Monday. Australia’s S&P ASX 200 XJO, +0.64%  was up 0.6%, while both the Shanghai Composite Index SHCOMP, +0.10%  and South Korea’s Kospi SEU, +0.10% gained 0.1%. Hong Kong’s Hang Seng Index HSI, +0.13% finished up 0.1%.
Expectations for easing from global central banks have kept most Asian markets moving higher in recent weeks, as has a rebound in flows to emerging markets. During the week of July 14 to 20, investors bought up to US$9.1 billion of Asian equities, the biggest weekly flow since 2014, according to Jefferies.
But traders and analysts increasingly say the market has been dialing back hopes, concerned that Bank of Japan will fail to live up to investors’ rather large easing expectations.
“The combination of a stronger dollar-yen [yen weakening] and flow into emerging markets has been keeping things up, but I’m not sure how long that’s going to last,” said Ilya Feygin, managing director of WallachBeth Capital. Friday could be a big day, he said: Investors await both the results of a stress test of European banks and an announcement from the Bank of Japan after its two-day policy meeting.
Money has poured into Japanese equities recently, as some foreign investors hold out hopes for a major stimulus—perhaps in the form of “helicopter money,” or a direct injection of newly printed cash into the economy. Japan’s market has gained 6.7% this month.
But analysts have warned of volatility to come.
“We think they’ll deliver a bit of everything, but not quite the bazooka some may be hoping for,” writes Frederic Neumann, co-head of Asian economics research at HSBC Global Research.
HSBC predicts that the bank will raise annual asset purchases to ¥90 trillion from ¥80 trillion (to $847.8 billion from $753.6 billion), including a doubling of ETF purchases from the current ¥3.3 trillion yen. A cut in interest rates by 0.3 percentage point is also possible. But HSBC is skeptical about helicopter money—which Bank of Japan Governor Haruhiko Kuroda has described as “prohibited”—and Neumann goes so far as saying the Bank of Japan could end up doing nothing.
On Monday, profit-taking kicked in for Nintendo Co. 7974, -17.72% and McDonald’s Holdings Co. (Japan) 2702, -11.60% following exuberant rallies for both stocks inspired by the Pokémon Go craze.
Nintendo closed down 18% at ¥23,220 a share, following the company’s statement late Friday that the earnings impact from the game on Nintendo’s group earnings will be limited.
Nintendo’s shares have risen 89% since the launch of the smartphone game earlier this month.
McDonald shares fell 12% Monday to ¥3,200 after having gained 25% since the game’s launch.
In Hong Kong, shares of Hong Kong-listed Sinopec Engineering Group 2386, -4.57% slumped 4.6% after the unit of Chinese oil-refining giant Sinopec issued a profit warning for the first half, citing the global economic slowdown and low oil prices.
Trading in Hong Kong was extended a few minutes starting Monday, as the Hong Kong Exchanges & Clearing tested the first phase of a closing auction in its securities market. Most developed markets have such auctions to determine final trading prices.