Heisenberg Report

Asia Rally Dies On The Vine, But On The Bright Side, There’s A German Coalition

Ok, so there’s good news on Wednesday morning and there’s also some not-so-good news. I’m going to assume you want to good news first, so here it is:

So apparently, Germany will not disintegrate into political chaos after all which is a good fucking thing, because when it comes to democracies run by people who are all at once sane, competent, and also experienced, we’re running a little low these days. As a reminder, SPD swore they weren’t interested in another grand coalition after they put up their worst result pretty much ever in the September elections. But they kind of U-turned on that after Merkel’s efforts to form a government collapsed, putting Martin Schulz in the position of either tacitly supporting Merkel or else risking a kind of political turmoil that the established parties probably didn’t want. Today’s deal came after marathon talks and Germany isn’t out of the woods yet. This will still have to be sold to the rank and file. Ultimately, I’m not sure anyone is super-thrilled with this, but it’s probably better than the alternative (and you can take “alternative” however you like there).

So that’s the ostensibly good news.

The bad news is that the rally in Asia was faded – hard. Stocks in Japan roared out of the gate on Wednesday taking their lead from gains on Wall Street, where the Dow swung wildly on Tuesday but ultimately closed higher by more than 500 points. So it wasn’t ideal that Asia gave up the opening spike. Here’s the Nikkei and Topix for instance:

The Nikkei finished just barely in positive territory after rising as much as 3%.

In South Korea, this dynamic was even more dramatic – at least as far as going from upbeat to outright dour. Have a look at the Kospi:

To be fair, the Kospi did manage to rebound more from the Tuesday lows than other regional markets so it might have just gotten exhausted with trying to fight the risk-off sentiment. “Unlike other markets, the South Korean stock market rebounded yesterday afternoon, with an inflow from local institutional investors,” Julia Yoo, equity manager at Midas International Asset Management in Seoul told Bloomberg. “So South Korean stocks didn’t fall that much compared with others in the region yesterday.”

In Hong Kong, the wheels have pretty much come off this week and you can’t say it wasn’t overdue. January was a blockbuster month for the Hang Seng and especially for H-shares. Well, after a truly horrific Tuesday, things got worse with the Hang Seng erasing early gains to fall 0.8% and the Hang Seng China Enterprise index diving 2%. Here’s what February looks like:

On the mainland, shares extended Tuesday’s losses with the two-day drop on the SHCOMP now at roughly 5%:

So there you go. That would seem to suggest this ain’t over. Or at least not as far as Asia’s concerned, because whatever relief you could infer from the opening bounce on Wednesday did not last into the close.