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Asian Markets Brace for the Final Week of First Half
The last trading week of the first half of the year kicks off on Monday, presenting a mixed picture across Asian markets. From an equities standpoint, the outlook appears relatively positive, whereas the currency and bond landscapes offer a varied view. Conversely, the sentiment surrounding Chinese markets remains notably pessimistic.
Chinese Market Struggles
Chinese stocks are aiming to break a streak of poor performance, which has seen them lag behind both regional and global counterparts this year. This underperformance extends into June, with the Shanghai Composite barely managing to stay in positive territory for the year and having recorded a 5% loss in the past month alone.
Contributing to the negative sentiment are escalating trade tensions between China and Western nations. The situation worsened last Friday when the U.S. introduced draft rules aimed at restricting certain investments in Chinese technology sectors, including artificial intelligence. Furthermore, foreign direct investment into China plunged by 28% from January to May compared to the same period last year. This month, approximately $4.5 billion exited the mainland through the Northbound leg of the Stock Connect Scheme, ending four consecutive months of net inflows.
Despite this bleak outlook, Barclays analysts believe the selloff may be overdone and suggest that a low threshold is set for market-friendly developments in the upcoming Communist Party central committee meeting, potentially sparking a rebound.
Eyes on the Yen
In Japan, attention is focused on the yen, which fell for the seventh consecutive day last Friday, nearing the 160.00 per dollar mark. This level of depreciation previously triggered foreign exchange interventions by Tokyo nearly two months ago. With the Bank of Japan (BOJ) not scheduled to convene again until July 30-31, it may need to resort to verbal or direct market interventions to arrest the yen's decline. Analysts and investors will be scrutinizing the BOJ's summary of opinions from its June 13-14 policy meeting, set for release on Monday.
Other Key Developments
The regional economic calendar for Monday includes significant updates such as New Zealand's latest trade figures, Singapore's inflation rates for May, and Taiwan's unemployment and industrial production data for May.
As for the broader Asian markets, they are entering the last week of June on solid footing, benefiting from subdued volatility, globally declining inflation rates, lower U.S. bond yields, and buoyant equities worldwide. With the first half of the year wrapping up, some investors may seek to secure profits and balance their positions. The recent decline in Nvidia shares, marking their first weekly drop in nine, could set the tone for the week's trading.
Performance of Key Markets
Overall, Japanese stocks have surged approximately 15% year-to-date. Other major indices such as the MSCI Asia ex-Japan, India’s Sensex, and South Korea’s Kospi have all appreciated around 7% this year. China remains the primary outlier, grappling with significant headwinds that have stifled market performance.
Upcoming Market Drivers
Key developments that could influence market directions on Monday include:
The BOJ's summary of opinions from its June meeting Singapore’s inflation data for May Taiwan’s industrial production figures for May
