The Trump-Xi Trade Truce Stock Rally Lasted 24 Hours. Now What?

(Bloomberg) -- The 90-day cease-fire in the U.S.-China trade war added about $520 billion of market value back to Asia’s equity markets on Monday. Now, it looks like the party is over.

Here is where we are: Asian stocks took a breather Tuesday, with MSCI Asia Pacific Index coming off from a near two-month high. Japan’s Topix snapped its seven-day rising streak and slid almost 2 percent as investors took profits and the yen strengthened. Chinese shares fluctuated between gains and losses, and Hong Kong’s Hang Seng Index fell 0.5 percent.

The theories swirling around the short-lived rally in Asian stock markets include:

What’s Next

This brings us to: what happens now? Without slanting the discussion one way or another, there are several things to watch our for. First, market turbulence is here to stay. In a research report published Monday, Societe Generale strategist Frank Benzimra said the trade truce is a positive development for risky assets, but future talks may not be smooth and that “opens the door for more volatility during the next three months.” That should be good news for traders.

Aberdeen Standard Investments fund manager Bharat Joshi is more skeptical. He recommends riding the wave available from this run-up in stocks, but that this won’t last long. “The recent gain from the truce between U.S. and China is more like a knee-jerk reaction, and I don’t expect that to help the overall global fundamentals going forward,” he said. “I would prepare myself to cash in in six months or so.”

Credit Suisse published a note where it upgraded South Korean stocks to a buy rating and Taiwan to a hold. In that report, the firm’s analysts also said emerging-market stocks will have a more favorable climate next year on a flat to marginally weak U.S. dollar, while it double-downgraded Indian equities to sell and dropped Malaysia one notch to a hold rating.

For the optimists out there, perhaps historical data can help: December hasn’t traditionally been a bad month. In the past 30 years, the MSCI Asia Pacific Index had positive December returns almost 70 percent of the time. While the first day of that month hasn’t anticipated the gauge’s monthly direction in the past two years, it did between 2011 and 2015.

One bright spot in Asia has been the Philippine market -- the country’s benchmark gauge kept its momentum, rising as much as 2.1 percent on Tuesday and going past a key level of 7,600. “There are no sellers right now, so stocks are rising sharply and rapidly,” said Manuel Cruz, a strategist at Papa Securities.

Here are some notable movers in the region:

• Hanmi Pharm Rises as KIS Picks Stock Ahead of Rolontis Filing
• Kepco Gains After Report Ruling Party Seeks Corporate Rate Hike
• Kawasaki Kisen Slides as SMBC Nikko Sees Weak Profits Lingering
• Metcash Cut at Macquarie Amid Contract Loss, Competition Issues
• Regent Pacific Soars on China License Agreement for PE Treatment

Stock-Market Summary

• Japan’s Topix index down 2%; Nikkei 225 down 1.9%
• Hong Kong’s Hang Seng Index down 0.5%; Hang Seng China Enterprises down 0.6%; Shanghai Composite down 0.1%
• Taiwan’s Taiex index down 0.5%
• South Korea’s Kospi index down 0.9%; Kospi 200 down 1.1%
• Australia’s S&P/ASX 200 down 0.9%; New Zealand’s S&P/NZX 50 down 0.1%
• India’s S&P BSE Sensex Index down 0.4%; NSE Nifty 50 down 0.3%
• Singapore’s Straits Times Index down 1.1%; Malaysia’s KLCI down 0.4%; Philippine Stock Exchange up 1.8%; Jakarta Composite up 0.3%; Thailand’s SET little changed; Vietnam’s VN Index up 0.1%

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