Global Equities Bounce as Geopolitical Tensions ease, Japan Accelerates Growth

By Joyce Yu

Philadelphia–U.S. officials on Friday moved to tamp down fears of imminent war with North Korea, easing market concerns over tensions between the two countries. Coupled with positive data of the Japanese economy, this had led Asian stocks to bounce on Monday after three losing sessions last week. Wall Street also opened higher this morning.

Japan surprised the market on Monday with its economic data that showed its economy grew by 1% iin the second quarter compared with the previous quarter, marking the sixth straight quarter of growth and boosting the its annualized growth to 4%.

“Aside from some political uncertainty that I believe the market will soon look beyond, earnings and economic data remain robust,” said Nick Savone, New York-based managing director at Morgan Stanley.

Also releasing its economic data yesterday was China. The world’s second largest economy saw its growth continue to moderate. Factory output rose 6.4 percent in July from a year earlier, the slowest pace since January, the Reuter’s reported.

“A few sectors, such as steel, seem to have defied this slowdown in economic activity. But the strength in these areas likely won’t last given that policy tightening is set to further weigh on infrastructure and property investment in coming months,” said Julian Evans-Pritchard, China economist at Capital Economics.

In meantime, the US is set to get tough on trade with China as President Trump prepares to order a probe into alleged China trade abuses, such as the theft of intellectual property from American firms, according to a CNN report.

Despite escalating trade tensions between the U.S. and China, the latter is a reliable source of profit growth for many American companies, showed in their results reports.

A recent Reuters’ report pointed out that the American companies are benefiting from a fast growing Chinese economy, the country’s housing boom, and a slide in the U.S. dollar, which makes American exports more competitive and increases dollar earnings once they are translated from foreign currencies.

The report further added, Chinese President Xi Jinping’s ambitious plan to build a new Silk Road will improve links between China and dozens of countries in Asia and Europe, and also bring many billions of dollars of new roads, bridges, railways and power plants. This will help American firms to sell heavy equipment and other products.

“China’s grown pretty well relative to the U.S. over this period and the currency’s relationship has changed in favor of the U.S. companies,” said Jim Paulsen, chief investment strategist at the Leuthold Group in Minneapolis.

A July report by the American Chamber of Commerce in Shanghai showed that 82 percent of U.S. companies in China expect revenues to increase this year, up from 76 percent a year ago.

“In general China is still a growth market for lots of US goods and services… the Chinese consumer is driving more and more the growth in China itself – that’s a very positive shift in compositional growth for a lot of U.S. companies that do provide goods and services for consumers, as opposed to building skyscrapers,” said Joe Quinlan, head of thematic investing at Bank of America, U.S. Trust.

For other companies which are facing slower growth elsewhere, China’s growth helped to offset their problems. A prime example is Starbucks U.S which is experiencing cooled growth in the third quarter but same-store sales for the coffee chain in China surged 7 percent.