Asian stocks edged lower on Wednesday as strong U.S housing data overnight increased the chances of an interest rate increase in coming months, prompting some investors to take profits, while oil prices slipped after a surprise jump in U.S. inventories.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.4 percent in early trade. It has risen more than 14 percent since late June, and hit a 1-year high last week, helped by increased interest in emerging markets after a shock vote by Britain to exit the European Union.
Since late July, emerging market funds have seen net inflows of some $13.2 billion, more than developed market funds in terms of assets under management, according to Institute of International Finance data.
Within the region, Hong Kong stocks .HSI slid 0.8 percent on Wednesday as investors sold financials, while Japanese markets .N225 led gainers, rising 0.6 percent.
“China’s stock markets have benefited from Brexit-related capital flows but that impact is fading and we are cautious on the market outlook given increasing signs of economic weakness,” said Francis Cheung, head of China and Hong Kong strategy at brokerage CLSA.
While Hong Kong’s benchmark index has rallied 18 percent since late June, on a price-to-earnings basis, it still remains around one standard deviation below a 20-year average, indicating investors are not fully convinced about the durability of the gains.
Compounding the anxiety, recent Chinese economic data has been anything but cheerful. Both exports and imports fell more than expected in July and government officials have repeatedly said the economy is facing downward pressure.
However, the pessimism around China has been balanced by growing optimism around emerging markets as some investors such as bond giant PIMCO are slowly turning more bullish, citing a rebound in growth and improving economic fundamentals.
On a year-to-date basis, MSCI’s emerging market index .dMIEF00000PUS has outperformed the world index .dMIWD00000PUS on a total returns basis, with most of the gains seen since June, according to Thomson Reuters Datastream.
U.S. housing-related stocks .HGX jumped 2 percent on Tuesday after the Commerce Department reported new U.S. single-family home sales soared unexpectedly in July to near nine-year highs. Stocks in both Europe and the U.S. ended higher.
Global central bankers gather in Jackson Hole, Wyoming, late this week with investors focused on a speech by Fed Chair Janet Yellen on Friday, hoping for more clues on policy.
“At this juncture, the consensus is coalescing around the view that Yellen will bait the market enough to sustain further rate normalization expectations for this year without telegraphing a September hike,” analysts at OCBC in Singapore wrote in a note.
In currency markets, the spike in new U.S. home sales pushed the dollar to 94.6 against a trade-weighted basket of currencies =USD after a drop of more than 2 percent ar this month.
The Australian dollar AUD=D3 looked set to add to recent gains as Australia’s relatively higher interest rates attracted overseas investors.
Oil prices tumbled, reversing early gains, after the American Petroleum Institute (API) reported on Tuesday that U.S. crude inventories rose by a surprising 4.5 million barrels last week.
Brent crude LCOc1 fell 1 percent to $49.46 a barrel, while U.S. West Texas Intermediate (WTI) crude CLc1 slipped 1.3 percent to $47.48 in early deals.