Asian Stocks Post Modest Gains on China’s Stronger Factory Activity

HONG KONG (Reuters) -
People walk by an electronic stock board of a securities firm in Tokyo, Friday, July 15, 2016. Asian shares were higher Friday after China reported steady economic growth in the second quarter of the year. Stocks also tracked a bullish session overnight on Wall Street, as strong earnings reports pushed the Dow Jones industrial average and S&P to fresh record highs. (AP Photo/Koji Sasahara)
People walk by an electronic stock board of a securities firm in Tokyo. (AP Photo/Koji Sasahara)

Asian stocks bounced on Tuesday, erasing early losses, helped by stronger-than-expected factory activity in China, but investors stayed largely to the sidelines as the U.S. presidential election campaign entered its final week.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5 percent, after earlier hitting its lowest level since Sept. 19, an impressive intraday turnaround of nearly 1 percent.

October marked the first monthly loss for the index since May, with buyers partly put off by the prospect of U.S. interest rates being raised by the year end and caution ahead of the Nov. 8 election.

European markets are expected to open flat to slightly higher tracking gains in Asian stocks.

Chinese shares led regional gainers with Hong Kong and Shanghai stocks up 1.2 percent and 0.5 percent each. Financials were among the top gainers in both markets.

Activity in China’s manufacturing sector expanded at a faster pace than expected in October, an official survey showed on Tuesday, adding to views that the world’s second-largest economy is stabilizing, thanks to a construction boom.

“While the headline numbers were eye-catching, especially the rebound in the small and medium enterprises, markets remain unconvinced about the sustainability of the rebound especially given [that] the credit system fueling this growth looks worrisome,” said Cliff Tan, East Asia head of global markets research at Bank of Tokyo-Mitsubishi UFJ.

But worries over the election largely overshadowed the upbeat China data and other events this week. Investor trepidation ahead of the Nov. 8 election was captured in the so-called “fear index,” a broad gauge measuring volatility, which was at its highest levels in a month.

Opinion polls now show Democrat Hillary Clinton’s lead over Republican Donald Trump has narrowed slightly since early last week, though it is not yet known if a fresh email controversy will hurt her support.

Markets view Clinton as a candidate who will largely maintain the status quo, while there is greater uncertainty over what a Trump victory might mean for U.S. foreign policy, international trade deals and the domestic economy.

Shane Oliver, head of investment strategy at AMP Capital, reckons a Trump victory would be negative for Australian and Asian shares due to concerns over his more protectionist views on trade, while safe-haven assets like bonds and the dollar may benefit.

Meantime, the two major central banks in the Asia-Pacific region, the Reserve Bank of Australia and the Bank of Japan kept their dovish policy stance unchanged.

Broad-based weakness in equities bolstered bond prices. U.S. Treasury bond yields fell across the board with two- to 30-year yields slipping between two to four basis points. In early Asian trade, Japanese and Australian bond yields also pushed lower.

Foreign exchange markets were quiet, and the dollar index , which tracks the greenback against a basket of six global peers, was flat at around 98.42.

U.S. crude edged higher around $47.1 per barrel after falling nearly 4 percent, while global benchmark Brent was flat around $48.85 a barrel after falling nearly 1.5 percent in overnight trade.

The Organization of the Petroleum Exporting Countries (OPEC) approved the outlines of a long-term strategy on Monday, a sign its members are achieving consensus on managing production.