Hong Kong | Asian markets retreated on Tuesday as investors awaited fresh developments in the China-US trade talks, while Beijing lowered its growth forecasts for this year and unveiled massive tax cuts to support the stuttering Chinese economy.
Equity investors tracked losses on Wall Street, where the global rally hit a bump as optimism that the world’s top two economies are heading for a tariffs deal was replaced by a need for clarity on any agreement.
Shares have enjoyed a blockbuster start to the year so far but OANDA senior market analyst Alfonso Esparza, said: “Trade optimism could only take the stock market so far.
“High level talks between the two largest economies have been ongoing and although they appear close to bearing fruit, the fact remains that the optimism has already been priced in. Details on the agreement will be needed to unlock gains.”
In early trade, Shanghai was down 0.2 percent while Hong Kong slipped 0.6 percent and Tokyo headed into the break 0.6 percent lower. Sydney eased 0.5 percent, Singapore was 0.4 percent off and Seoul gave up 0.7 percent with Taipei, Jakarta and Wellington also lower.
There was little major response early on from news that China had lowered its growth target for this year to 6.0-6.5 percent while announcing hundreds of billions of dollars worth of tax cuts for firms to stimulate the economy.
Beijing will also increase spending, with the targeted fiscal deficit set to increase to 2.8 percent of GDP, from 2.6 percent last year, while the National People’s Congress is expected to pass laws next week regulating foreign investment, in a move that could help ease US trade tensions.
The growth figure is below the 6.6 per cent achieved in 2018 — which was the slowest for three decades — and comes as the leadership struggles to address a mounting debt crisis as well as the trade row.
In a speech at the open of China’s annual rubber-stamp parliament, Premier Li Keqiang warned the country “will face a graver and more complicated environment as well as risks and challenges, foreseeable and otherwise, that are greater in number and size”. “We must be fully prepared for a tough struggle.”
However, Tai Hui, Asia-Pacific chief market strategist at JP Morgan Asset Management, said the latest target indicated the leadership had learned from the past.
It “reflects top officials’ maturity in accepting that China needs to stabilise growth in a sustainable manner, instead of a rush of liquidity to the economy, as we saw in previous downturns”, he said.
“They need to strike a balance between boosting economic activity and not restart another debt-fuelled boom. It would be unrealistic to expect 2019 to be stronger than 2018 considering global headwinds and some structural challenges in the Chinese economy.”
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