Asia shares rise as investors pick favourites

HONG KONG, June 8 – The euro bounced from a four-year low and Asian stocks rose on Tuesday as traders paused in their selloff of risky assets ahead of Chinese economic data and a European Central Bank meeting later in the week.
Fears about a spreading European sovereign debt crisis, a slowdown in China and a weak US job market have combined to sap investors’ willingness to take risks for higher returns, prompting them to dump global equities, high-yield bonds, the euro and emerging market currencies.
However, the euro has fallen 12 per cent so far in the second quarter – on track for the biggest quarterly decline since being launched in 1999 – and global equities are the cheapest since the latest bull market started in March 2009.

The pace of decline has enticed some buyers to sift through the market, with an eye for value.

Japan’s Nikkei share average rose 0.4 per cent while the MSCI Asia ex-Japan index added 0.6 per cent.

“We’re seeing cherry-picking of shares today. Caution pervades after the US market’s substantial losses and continued foreign selling, but investors are scooping up some shares that they’re bullish on in the longer-term,” said Kim Jeong-hoon, a market analyst at Korea Investment & Securities in Seoul.

The euro climbed 0.3 per cent to $1.1955, causing dealers to cover their bets against the currency and push it up from a four-year low of $1.1875 plumbed overnight.

Ben Bernanke, chairman of the Federal Reserve, offered his verbal support, saying European leaders were committed to ensuring the survival of the euro and have the means to support every heavily indebted member of the currency union.

After a policy meeting on Thursday, ECB president Jean-Claude Trichet will likely face tough questioning on liquidity provisions in the eurozone and the stability of the European financial system.

The Australian dollar, a favourite of investors because of its relatively high interest rate, rose 1.2 per cent to US$0.8200, retracing almost all of Monday’s losses.

The Nikkei rebounded after suffering its biggest one-day fall in 14 months on Monday.

“Though pension funds are likely to emerge to buy at the lows, even retail investors are starting to get a bit spooked at this point, so whether they’ll buy or not is key,” said Kenichi Hirano, operating officer at Tachibana Securities in Tokyo.

Hong Kong’s Hang Seng index was up 0.3 per cent on the day, with gains in index heavyweight HSBC winning out over small losses in other banks and land developers.

As worries grew about the health of the global economic recovery, short-selling of Hong Kong-listed equities picked up on Monday to 10 per cent of trading volume, with banks making up the three of the top four most-shorted stocks, a dealer said.

Valuations of global equities have come down quickly in the last several weeks. The MSCI index of world equities is trading at 11.4 times its expected 12-month earnings, the lowest since March 2009.

The uncertain global economic outlook could have an impact on earnings forecasts, though economists as a whole have not changed their growth predictions in a big way.

Asian investors are awaiting a flurry of data from China this week after reports last month indicated growth may have peaked in the world’s third-largest economy.

Though the number of property sales in big Chinese cities is decreasing, likely pointing to an easing in price pressures, other indicators do not reflect a massive slowdown in the world’s fastest-growing economy or its demand for imported goods.

On the contrary, Taiwan’s exports to China in May rose 66 per cent on a year-on-year basis, indicating sustained demand from a key trade market.

The benchmark 10-year US Treasury yield rebounded to 3.18 per cent after finishing trade in New York around 3.15 per cent.

Still, in the last two months the yield has tumbled 65 basis points, squashed by investors exiting risky trades and buying Treasuries, particularly late-dated maturities. The spread between 10-year and 2-year yields has narrowed 37 basis points since April.

The sliding US dollar put some upward pressure on crude prices. The July contract was up 0.2 per cent to $71.59 a barrel.