Asian Markets Mixed As Traders Eye Virus, Inflation, Rates

Asian markets were mixed Tuesday as investors struggled to take their lead from yet another record on Wall Street that was fuelled by easing concerns about Omicron and remaining optimism about the economic recovery.

While the new Covid variant is spreading like wildfire around the world, it appears to be far less severe than initially feared, raising hopes that the pandemic could be overcome and life return to a little more normality.

However, inflation, supply chain snags, central bank policy tightening and geopolitical woes continue to weigh on sentiment and analysts have warned that the blockbuster gains seen in recent years could be tougher to attain.

“We expect 2022 to be far more challenging from an investment perspective,” Heather Wald, of Bel Air Investment Advisors, noted. “Rarely has a market delivered three consecutive years of double-digit returns, as we have seen from 2019-2021.”

Still, she still expected “equities to remain attractive versus other liquid asset classes”.

And market strategist Louis Navellier added: “Equities are still the only game in town, with cash and bonds offering negative real returns, and equities forecasted with double-digit earnings growth and record stock buybacks anticipated.”

The Dow and S&P 500 started the new year in the same fashion as they spent most of 2021, by notching up new all-time highs, while the Nasdaq also rallied thanks to a surge in big-name stars including Apple, which briefly became the first firm valued at $3 trillion, and Tesla.

But Asian markets were not quite as convincing.

Tokyo and Sydney jumped more than one percent each on their first trading day of the year, while there were also gains in Singapore, Taipei and Jakarta.

But Hong Kong and Shanghai dipped, weighed by tech firms and ongoing fears about China’s property sector, while Seoul was also in the red.

Investors will be keeping a close eye on the release of minutes from the Federal Reserve’s December policy meeting hoping for some insight into its plans this year in light of surging inflation, which is forcing central banks around the world to wind back their pandemic stimulus.

The Fed has already started tapering its bond-buying programme and focus is now on what it will do with interest rates, with some commentators predicting three hikes before 2023.

Anticipation that rates will rise lifted the yield on the 10-year US Treasury note above 1.6 percent Monday though analysts said that could also reflect an upbeat view on the economic outlook.

And strategist Navellier remained positive.

“We’ve climbed bigger walls of worry than we face today,” he said. “I am expecting a very strong January, characterised by higher trading volume as well as stunning fourth-quarter sales and earnings announcement.

Investors will be keeping a close eye on the European Central Bank’s latest policy meeting for any clues about its plans as the economic recovery picks up pace Photo: AFP / Armando BABANI

“Interestingly, thanks to political gridlock, the private sector is expected to dominate GDP growth in 2022. Inflation is expected to persist, but may moderate somewhat in the second half of 2022.

“In my opinion, the Fed will remain accommodative in 2022 and the Goldilocks environment will continue.”

Tokyo – Nikkei 225: DOWN 0.2 percent at 23,223.03 (break)

Hong Kong – Hang Seng Index: DOWN 0.3 percent at 23,211.99

Shanghai – Composite: DOWN 0.6 percent at 3,616.74

Dollar/yen: DOWN at 115.44 yen from 115.47 yen late Monday

Euro/dollar: UP at $1.1307 from $1.1302

Pound/dollar: DOWN at $1.3477 from $1.3480

Euro/pound: UP at 83.89 pence from 83.82

West Texas Intermediate: DOWN 0.1 percent at $76.03 per barrel

Brent North Sea crude: DOWN 0.1 percent at $78.93 per barrel

New York – DOW: UP 0.7 percent at 36,585.06 (close)

London – FTSE 100: Closed for public holiday