Asia markets have had a mixed reaction to the U.S. government shutdown, which commenced Tuesday after lawmakers failed to reach a last-minute deal. Anticipation saw Asia hit hard on Monday, with financial markets posting a broad sell-off. Amid worries over the US Federal Reserve’s delayed “tapering” of its easy money policy, ironically it was elected officials who caused the most damage.
Tokyo stocks lost 2 percent, Australia 1.7 percent, Hong Kong 1.5 percent and Singapore 1.3 percent, as investors reacted to reports that US politicians were unlikely to reach agreement before a midnight Monday deadline to prevent a government shutdown.
Only the Chinese market bucked the trend, posting a 0.6 percent gain after a key manufacturing index advanced for the second straight month, although failing to match economists’ expectations.
On Tuesday, however, despite confirmation that the shutdown was taking place, markets were calmer, and most Asian bourses clawed back some of Monday’s losses. Japan’s Nikkei posted a modest 0.2% gain, rising on news that the government of Shinzo Abe would proceed with a consumption tax increase, seen by many as essential to reining in its runaway debt. Most other Asian markets posted similarly modest gains, although Hong Kong and Australia added to Monday’s declines.
"The blind optimism [that has driven equities] over the last month will evaporate and that makes us nervous about the next four weeks of trading. Trade is going to shift quickly and sporadically," IG market strategist Evan Lucas told CNBC.
Lucas said U.S. stocks could drop by up to 7 percent should the shutdown extend beyond a few days, with 800,000 US government workers forced to take unpaid leave as well as closing non-essential services.
Traders in Australia expressed concern over the political drama, despite stocks posting their best quarter in four years on the back of a new business-friendly government.
“If a deal is not reached to lift the debt ceiling in the U.S., Australian shares will have a knee-jerk sell-off,” Auscap Asset Management portfolio manager Matthew Parker told the Australian Financial Review. “But local money sitting on the sidelines looking for a buying opportunity may lessen how hard the local market is hit.”
The Reserve Bank of Australia kept official interest rates steady at its all-time low of 2.5 percent at its policy meeting Tuesday, amid subdued growth.
A U.S. government shutdown could cut U.S. fourth-quarter growth by as much as 1.4 percentage points, as well as threatening a potential U.S. government default should talks fail over raising the $16.7 trillion debt ceiling.
Some analysts said a stock decline could be a buying opportunity, particularly in commodities and in resource-linked markets such as Australia’s. On Monday, for instance, gold stocks were among the few winners, with the precious metal being traditionally valued as a safe haven.
However, with Asian markets still nervous over the timing of the Fed’s proposed tapering of its quantitative easing policy, the worse may be still to come for the region’s investors.
Asian brands advance
Brighter news for Asian stocks came Monday with Interbrand’s study of the world’s 100 “best global brands” showing further advances for Asian companies, principally those from Japan and South Korea.
While U.S. brands led by Apple took the top seven spots, South Korea’s Samsung gained one spot to eighth compared to the 2012 survey, posting a 20 percent rise in brand value to $39 billion. Japan’s Toyota again ranked 10th, up 17 percent to $35 billion.
Rival Japanese automaker Honda took 20th place, gaining 7 percent to $18 billion, while Hong Kong’s HSBC was the next best placed Asian company, ranking 32nd with a brand value of $12 billion, ahead of Japan’s Canon in 35th place.
Other Asian brands to make the top 100 included 43rd-ranked Hyundai, valued at $9 billion, and rival South Korean automaker Kia, ranked 83rd. However, Japanese brands led the region’s representation, with others included comprising Sony (46th), Nissan (65th), Nintendo (67th) and Panasonic (68th).
Chinese brands were noticeable by their absence in the annual study of brand value, which examines financial performance, ability to influence consumer preferences and earnings. The total value of the brands ranked reached $1.5 trillion, up 8.4 percent on the previous year’s survey, with technology dominating as the most valuable sector.