Asia Pacific Markets: Foreigner Selling Spree Drives South Korean KOSPI Sharply Lower

The major Asia Pacific indexes closed mixed but mostly lower last week. Keeping a lid on the markets were concerns about a possible snag in U.S.-China trade relations over the rollback of tariffs that could push a deal into early 2020. Investors in Japan were troubled by a weakening economy. In Australia, a money-laundering scandal hurt the financial sector, which weighed on the broad index. Talk of new stimulus, helped the Hong Kong market buck the trend, but political turmoil and violence continued.

Last week, Japan’s Nikkei 225 Index settled at 23112.88, down 190.44, down 0.82%. Korea’s KOSPI closed at 2101.96, down 60.22 or -2.79% and Hong Kong’s Hang Seng finished at 26595.08, up 268.42 or 1.02%.

China’s Shanghai Index settled at 2885.29, down 6.05 or -0.21% and Australia’s S&P ASX 200 closed at 6709.80, down 83.90 or -1.23%.

Japan

Uncertainty over a U.S.-China trade deal was primarily responsible for the weakness in Japanese shares markets last week. Of particular concern was U.S. President Trump’s threat to raise tariffs on Chinese goods if the two economic powerhouses do not strike a deal.

Additionally, Japanese merchandise trade data for October from the Ministry of Finance showed exports for the month fell 9.2% year-on-year – well off the 7.6% year-on-year decline expected by economists in a Reuters poll. The plunge in exports marked the 11^th consecutive monthly decline. The drop was blamed on weakening demand for vehicles and aircraft parts from the United States.

Exports to China fell 10.3 percent from a year earlier to 1.32 trillion Yen, weighed down by declining shipments of plastic raw materials and auto parts.

Japan’s trade surplus with the United States shrank 2.7 percent from a year earlier to 557.4 billion Yen amid sluggish auto-related exports.

South Korea

Foreigners went on a selling spree for the 11^th straight session, causing a drain of over $1 billion and a 2.2% retreat in the KOSPI index over the period.

Non-Korean nationals have kept up a net sale position from November 7 on the main bourse. On November 20 alone, foreigners net sold 330 billion won worth of KOSPI-listed shares, the biggest since September 25.

Foreigners have turned into net sellers due to renewed skepticism about a U.S.-China trade deal. Foreigners are also exiting from Korea ahead of the rebalancing of MSCI Emerging Markets Index, a benchmark used to measure equity market performance in emerging. All changes to the Index will be implemented as of the close of November 26, 2019.

China

Early last week, the People’s Bank of China (PBOC) reduced the interest rates on repurchase agreements, or repos – one of its main short-term liquidity tool – for the first time in more than four years.

The PBOC also released its new loan prime rates. The 1-year and 5-year prime rates were cut by 0.05% each from a month earlier to 4.15% and 4.8%, respectively.

Australia

The S&P/ASX 200 Index was primarily pressured by a plunge in the heavily-weighted financial subindex. That was pressured by a steep decline in Australia’s so-called Big Four banks.

The catalyst behind the selling was the news that Australia’s anti money-laundering and terrorism financing regulator filed for civil penalty orders against Westpac.

“It is alleged that Westpac’s oversight of the banking and designated services provided through its correspondent banking relationships was deficient,” the Australian Transaction Reports and Analysis Centre (AUSTRAC) said in a media release.