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Asian stocks set for a rough ride as geopolitical risks rise

Other News Materials 10 April 2017 06:29 (UTC +04:00)
Asian stocks started the week on a cautious footing on Monday as increased geopolitical risks prompted investors to favor safe-haven bets such as government debt while the dollar benefited from comments from a U.S. central banker
Asian stocks set for a rough ride as geopolitical risks rise

Asian stocks started the week on a cautious footing on Monday as increased geopolitical risks prompted investors to favor safe-haven bets such as government debt while the dollar benefited from comments from a U.S. central banker, Reuters reported.

The rise in risks of a conflict contrasts with market watchers' outlook for the global economy, which is perhaps the most optimistic it has been in years, with Chinese data this week expected to show the economy performing well.

Top aides to U.S. President Donald Trump differed on Sunday on where U.S. policy on Syria was headed after last week's attack on a Syrian air base, while U.S. Secretary of State Rex Tillerson warned the strikes were a warning to other nations, including North Korea.

A U.S. Navy strike group will be moving toward the western Pacific Ocean near the Korean peninsula as a show of force, a U.S. official told Reuters on Saturday, as concerns grow about North Korea's advancing weapons program.

"The risks of a conflict have certainly grown and that should keep the dollar supported against most Asian currencies with hawkish comments from the U.S. central bank also helping," said Gao Qi, an FX strategist at Scotiabank in Singapore.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was broadly flat after declining 0.4 percent on Friday. Korea .KS11 was down 0.5 percent while Australia was up by 0.4 percent.

Economic data also offered little support with major U.S. indexes closing lower in choppy trade after a key jobs report on Friday showed the economy added 98,000 jobs in March, the fewest since last May and well below economists' expectation of 180,000.

With S&P 500 valuations on a forward earnings basis at their highest since 2004, market watchers will be hoping for stellar corporate results to sustain a market rally.

Risk indicators have edged higher with the CBOE Volatility Index .VIX trading at near 13 compared to around 11 at the beginning of March, prompting some analysts to warn of a pull back in global equities.

"Shares remain vulnerable to a short term pull-back as investor sentiment towards them is very bullish and a lot of good news has been factored in which has left them vulnerable to any bad news," said Shane Oliver, head of investment strategy at AMP Capital in Sydney.

Latest flows data showed investors yanked money out of both developed and emerging market equity funds in the week ending April 5, according to Thomson Reuters Lipper data.

The dollar index .DXY, a trade-weighted basket of the greenback against its major rivals was trading near a one-month high of 101.26.

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