China shares rally, bucking Asia market falls after nuclear test

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Asian markets remained under pressure Wednesday as a reported nuclear test by North Korea heightened concerns for investors already fretting over the slowdown in China. But markets in China bucked the trend to finish solidly higher.

Angus Nicholson, market analyst at spreadbetter IG, said in his afternoon note that "China fears have again dominated Asian markets today," before the North Korean nuclear test "added a touch of Armageddon fears to the markets as well."

Reports emerged of a 5.1 magnitude earthquake in North Korea near a nuclear testing site. North Korea's state-owned television station later said that the country conducted a successful hydrogen nuclear test and said that it won't give up nuclear capability unless the U.S. drops its hostile foreign policy towards the country.

South Korea's Yonhap news agency reported the country's intelligence agency said North Korea gave no advance notice of nuclear tests to China or the United States.

Shrugging off continued concerns about tepid Chinese economic data, the Shanghai Composite finished up 74.58 points, or 2.27 percent, at 3,362.28, while the Shenzhen Composite tacked on 54.18 points, or 2.605 percent, to 2,133.96.

Other major markets ended the session in the red, with the Kospi down 5.10 points, or 0.26 percent, at 1,925.43. The Nikkei 225 was down 182.68 points, or 0.99 percent, at 18,191.32, while the ASX 200 saw a 61.3-point loss, or a 1.18 percent fall, to 5,123.13.

Safe haven assets see gains

Yen is good for rally-and-retreat trading: Guppy
Yen is good for rally-and-retreat trading: Guppy   

Investors also sought safer assets in the uncertain market environment.

The Japanese yen, considered a safe-harbor in times of tumult, rose with the dollar fetching 118.59 yen, compared with around 119.15 yen before the news on North Korea. The Korean won fell against the dollar, with the pair trading at 1,196.73, compared with around 1,192.20 before the news.

Citing traders in Seoul, Reuters reported that South Korean foreign exchange authorities were suspected of selling dollars to curb the won's decline, following the news of the earthquake.

Meanwhile, the yield on the 10-year U.S. Treasury note eased 2.22 basis points to 1.27 percent. A basis point is 1/100th of a percentage point. Bond prices and yields move in opposite directions.

Gold, another safe asset, has ticked up since the start of 2016. In Asian trade, gold was up 0.33 percent at $1,080.75 an ounce.

South Korean defense see gains

After news of North Korea's purported nuclear test broke, shares of South Korean defense stocks surged, but later pared back some of their rapid gains. Shares of Firstec closed 2.89 percent higher after surging as much as 20.76 percent intraday. Speco shares finished up 16.46 percent and Victek was up 25.80 percent.

Elsewhere, Samsung Electronics shares closed 2.73 percent lower ahead of its fourth-quarter earnings guidance expected later in the week. At the Consumer Electronics Show (CES) in Las Vegas, the electronics giant introduced a host of new products including laptops, tablets, TVs and a new smart refrigerator. It also added new designs for its Gear S2 smartwatch line.

In Japan, shares of Toyota finished down 1.98 percent. The carmaker announced Tuesday afternoon it aimed to sell 1.15 million vehicles in China this year with its joint venture partners, up 2.7 percent from 2015. According to reports, Toyota's sales in China fell 2.4 percent in December from a year earlier to about 122,000 vehicles.

Other exporters also traded lower, with Sony down 2.19 percent and Panasonic off 1.52 percent. A stronger yen can pressure exporters' earnings when they are translated back into the Japanese currency.

In Australia, banking stocks were firmly down, with National Australia Bank being the weakest among the so-called big four lenders, finishing down 1.39 percent. Resource plays were pressured, with Rio Tinto shares ending 2.9 percent lower and iron ore producer Fortescue declining 6.07 percent. Gold miner Newcrest erased early gains on the back of higher gold prices to close down 2.03 percent.

But Nicholson said the ASX was "rocked by another day of indiscriminate broad-based selling more driven by perceived market risk rather than any specific company factors."

Elsewhere, shares of Incitec Pivot, a fertilizer company, closed 3.87 percent lower after the company said a freight train derailment in Queensland, Australia, right after Christmas, will wipe $14 million from its full-year net profit. Reports added the train was carrying more than 800,000 liters of sulfuric acid to one of its manufacturing plants.

China's services sector sees modest gains

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Concerns about China weighed on shares around the region. China's services sector saw a modest expansion in December, though the pace was the slowest in 17 months, according to the Caixin non-manufacturing Purchasing Managers' Index (PMI), released Wednesday. The reading came in at 50.2 in December from 51.2 in November. Last week, the official services PMI reading for December was up at 54.4, from November's 53.6. A reading above 50 indicates an expansion in activity on a monthly basis.

The Caixin PMI is a closely-watched gauge of nationwide activity; it focuses on smaller and medium-sized companies, filling a niche that isn't covered by the official data.

Though China stocks finished higher, the drop in pace for the services sector, as shown by the Caixin data was a concern, Nicholson said, noting that greater importance is being given to monthly services PMIs as a result of China's economic re-balancing.

Traders were closely watching the China markets after Chinese equities plunged Monday following feeble manufacturing surveys and the end of a lockup on large shareholders. The CSI300 dipped 7 percent in afternoon trade Monday, resulting in trade being suspended for the day. There were reports that an unexpected decision by the People's Bank of China (PBOC) to not renew a credit line to the China Development Bank had sparked fears authorities planned to pull back on monetary easing, adding to unease in Chinese markets.

Beijing responded on Tuesday with a flurry of supportive measures, including a nearly $20 billion cash injection during the PBOC's open market operation and media reports indicated policymakers intervened to support the yuan and postpone the end of the share lockup.

Before trade on Wednesday, the People's Bank of China fixed the dollar-yuan midpoint at 6.5314 per dollar, down 0.22 percent from the previous day's fix, a faster pace than in recent sessions. That puts the yuan at its lowest level since 2011, which some analysts say caught foreign exchange and equity markets by surprise.

The yuan traded at 6.5291 against the dollar.

Meanwhile, in Hong Kong, shares in one of China's largest real estate developers, China Vanke, resumed trade, with the stock finishing down 9.17 percent. The company has been fighting a suspected hostile takeover bid by one of its largest shareholders. The shares had been suspended from trade since December 18 and the company's Shenzhen-listed shares still remain on a halt.

Shares of New World China, on the other hand, shot up 20.61 percent after Hong Kong-based real estate developer New World Development made another attempt to take the company private. The latter already owns a 69 percent stake in the company and offered to buy the remaining shares for HK$7.80 apiece, according to reports. The deal is estimated to be worth as much as HK$21.45 billion ($2.77 billion).

New World Development shares closed down 4.44 percent.

Oil remain on radar

Oil prices remained a sticking point after prices fell in overnight trade, despite ongoing tensions between two prominent oil producers: Saudi Arabia and Iran. In U.S. trade, futures were down over 2 percent.

After initially rising in Asia trade, West Texas Intermediate (WTI) crude pared some gains to trade at $36.03 a barrel, while the internationally traded benchmark, Brent, also trimmed advances to trade at $36.44 a barrel. Later, oil prices fell further, with both Brent and WTI plumbing fresh more than 11-year lows.

Energy plays in Australia finished mixed, between down 6.15 percent and up 0.3 percent. In Japan, Inpex and Japan Petroleum saw losses of 3.21 and 1.99 percent respectively.

Overnight in the U.S.

Major U.S. indexes closed mixed Tuesday, after a sharply lower start to the year. The Dow Jones Industrial Average closed up 9.72 points, or 0.06 percent, at 17,158.66, while the S&P 500 closed up 4.05 points, or 0.2 percent, at 2,016.71. The Nasdaq Composite was down 11.66 points, or 0.24 percent, at 4,891.43.

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