Asia shares struggle with no-deal Brexit fears

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SYDNEY/SINGAPORE/SHANGHAI

Asian stocks pared earlier losses to trade mostly flat on Thursday as investors awaited clarity on when the next steps in the United States and China trade negotiations might happen. The dollar held near a nine-month high and Treasury yields declined.

The British pound licked its wounds, dipping 0.1 per cent to US$1.2205 (S$1.6944) after sliding 0.6 per cent the previous day as the most serious UK political crisis in decades deepened when Prime Minister Boris Johnson decided to suspend Britain’s Parliament for more than a month before Brexit.

The move will limit the time opponents have to derail a disorderly Brexit but also increases the chance that Mr Johnson could face a vote of no-confidence in his government, and possibly an election.

From an economic point of view, actively pursuing a no-deal Brexit through suspending Parliament is tantamount to actively pursuing a recession, said  Seema Shah, Chief Strategist, Principal Global Investors in London.

Concerns about Brexit are already taking a toll on Europe, with the recent export slump in Germany driven mainly by weaker sales to Britain rather than the broader trade war. Stocks were little changed across Asia having climbed from intraday lows in thin trading. US futures pared losses though European contracts were lower. The MSCI Asia Pacific Index fell 0.1 per cent as of 1.24pm in Tokyo where the Topix index was flat.

Australia’s S&P/ASX 200 Index rose 0.1 per cent while South Korea’s Kospi index dropped 0.2 per cent. Hong Kong’s Hang Seng Index and the Shanghai Composite Index were little changed. Stock markets on the other hand are supported in the near-term by hopes of more stimulus, notably from the Federal Reserve and the European Central Bank, Shah said.

The two major central banks are expected to cut rates next month, while many investors believe the Bank of Japan could join the fray if market sentiment weakens further. The Trump administration on Wednesday made official its extra 5 per cent tariff on US$300 billion in Chinese imports and set collection dates of Sept 1 and December 15.

That means products such as smartwatches, Bluetooth headphones, flat panel televisions and many types of footwear will be levied from next month, raising worries about US consumption, one of the few remaining bright spots in the world economy. The precious metal markets highlighted investors’ quest to buy safer assets.

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