Asian Markets Weekly Review: Shanghai Composite Outshines Other Indices

Stock markets outside mainland China finished the week lower. The Shanghai Composite led the pack while the Japanese Nikkei trailed.

Asian stock markets outside China retreated at the beginning of the week following the weak US monthly jobs report. However, upbeat economic data from China stemmed losses.

The US economy created fewer jobs in July than in June, just as the jobless rate fell to its lowest in over four years that month. It added 162,000 nonfarm payroll jobs in July while the unemployment rate fell to 7.4%.

In China, an HSBC survey pegged China's Services Business Activity Index for July at 51.3, indicating an improvement in activity, and unchanged from the level seen in the June survey.

The figure followed results from a government survey that showed that the services sector picked up in July despite weakness in the manufacturing sector, a sign that the country's recently introduced stimulus measures for small firms seem to be working.

In Japan, a Nikkei newspaper report showed that the consolidated pre-tax profits of 668 listed companies rose an average 42% in the April-to-June first quarter compared to a year ago.

In South Korea, index heavyweight Samsung Electronics lost over $1bn in market value on Monday. Its stock price ended the day 0.93% down following a US government decision to veto an import ban on some Apple devices in the US.

Markets were mixed on 6 August as they struggled for direction amid a lack of economic cues.

The Reserve Bank of Australia (RBA) cut its cash rate by a quarter percentage point Tuesday, to an all-time low of 2.5%, in line with market consensus. The central bank also hinted at a further cut in rates if needed.

In a statement accompanying the decision, RBA Governor Glenn Stevens cited the local currency as a factor, saying the Australian dollar "has depreciated by around 15% since early April, although it remains at a high level" and that a further easing "would help to foster a rebalancing of growth in the economy.

"The inflation outlook could provide some scope to ease policy further, should that be required to support demand," he added.

Australia is struggling to move away from mining-led growth, prompting the RBA to cut its cash rate. In May, two influential Pimco analysts said Australia needs to slash interest rates in order to plug an economic black hole created by slowing mining activity.

In Hong Kong, HSBC dropped 4.5%, pulled down by concerns that the bank's revenues were being affected by slowing growth in emerging markets. Revenue fell 7% to $34.4bn.

Markets dropped to four-week lows on 7 August as renewed Federal Reserve stimulus fears dampened sentiments.

Market participants await clarity on the timing of the US Federal Reserve's planned quantitative easing tapering. However, comments from two top Fed officials on Tuesday failed to provide it.

Atlanta Fed president Dennis Lockhart said the initial cut back in the central bank's asset-buys could start at any of the three remaining Federal Open Market Committee (FOMC) meetings this year. Elsewhere, Chicago Fed President Charles Evans agreed that the central bank will possibly cutback on its bond-buying programme later in 2013.

The FOMC is due to meet on 17 September, 29 October and 17 December. The September and December meetings will be followed by a news conference by Fed Chairman Ben Bernanke.

Markets bounced back in the morning session on 8 August, from the previous day's heavy losses, following positive cues from China, Japan, and South Korea.

However, Japanese and mainland Chinese markets retreated in the afternoon session.

In China, stronger-than-expected trade data and last month's upbeat official purchasing managers' index (PMI) data have raised hopes that the world's second largest economy could be stabilising. On Thursday, Chinese government data showed that exports rose 5.1% in July, compared to a Reuters forecast of a 3% increase. Exports had fallen 3.1% in June.

Elsewhere, the Bank of Japan (BoJ) left its monetary policy unchanged, in line with market expectations. The central bank also left its assessment of the economy unchanged, at the end of a two-day policy meeting. The BoJ said in a statement that the Japanese economy "is starting to recover moderately".

In South Korea, the central bank also left its policy rate unchanged for a third consecutive month, as was widely expected.

Dariusz Kowalczyk, senior economist and strategist of Asia ex-Japan at Credit Agricole, said "the [Chinese] economy has bottomed out and will re-accelerate in the second half." We'd like to call the end to worries over China for this year."

Most markets traded lower in the afternoon session on 9 August, reversing modest gains despite two waves of upbeat economic data from China.

China reported stronger-than-expected industrial output growth for the month of July. Industrial production grew at its fastest pace since February and rose 9.7% last month from a year ago. Economists polled by Dow Jones Newswires and Reuters expected output to increase by 9%.

Earlier, data from the National Bureau of Statistics (NBS) showed China's consumer price inflation held steady in July and remained below the government's 3.5% target.

"We feel even just consensus readings on China data will be enough to satisfy investors and promote the recovery," said IG Markets strategist Stan Shamu.

Market Movements

The Shanghai Composite index finished 1.07% higher at 2,052.23.

The Japanese Nikkei index ended 4.80% lower at 13,615.19.

South Korea's Kospi finished 2.06% lower at 1,880.71.

Hong Kong's Hang Seng ended 1.93% lower at 21,807.56.

Australia's S&P/ASX 200 finished 1.30% lower at 5,055.20.

The Week Ahead

In the week ahead, Japan will issue monthly industrial production data alongside annual core machinery orders data.

India will release annual inflation and industrial production figures. The Indian Parliament has approved a long-awaited overhaul of company legislation that was put on the statute books 57 years ago. The new law strengthens accounting standards and shareholder rights in Asia's third largest economy, where many businesses are family-controlled.

South Korea will put out trade balance data alongside its unemployment rate.

Australia will release Wage Price Index data that measures the change in the price businesses and the government pay for labour. Furthermore, the National Australia Bank (NAB) will release the results of its business confidence survey, while Westpac Bank will put out the results of its consumer confidence poll.

New Zealand will put out quarterly retail sales data.

Singapore will put out annual GDP numbers while Hong Kong will release quarterly GDP data.