Tokyo - Asian shares made solid gains and the euro rose on
Tuesday, but concerns over eurozone sovereign funding ahead of key auctions
outweighed some optimism on the economic outlook elsewhere and kept investors
cautious about taking riskier positions.
MSCI’s broadest index of Asia Pacific shares outside Japan
rose 1.6% as the materials sector outperformed after Alcoa, the largest US
aluminium producer, gave a positive outlook for world demand.
Alcoa partly helped lift Australian shares and also Japan’s
Nikkei, which closed up 0.4%.
European markets were expected to open higher.
Financial spreadbetters expected Britain’s FTSE 100 to open
as much as 0.9% higher, Germany’s DAX to open with a gain of up to 1.2%, and
France’s CAC-40 to start up as much as 0.9%.
China’s exports and imports grew at their slowest pace in
more than two years in December as foreign and domestic demand ebbed, putting
export growth for the month at 13.4% compared with a year earlier.
With European woes overshadowing recent positive economic
data from the United States, market players sought signs of how the eurozone
debt crisis might affect Asian growth.
“External demand is expected to shrink due to the festering
debt crisis in Europe, China’s largest export destination, adding uncertainties
to the export outlook in 2012,” said Nie Wen, analyst at Hwabao Trust in
Shanghai.
Still, China shares jumped on Tuesday on hopes for an easier
monetary policy, pushing Hong Kong’s Hang Seng Index up 1.0% and Shanghai
shares more than 2.3% higher, in part also due to an improved technical
outlook.
Asia held hostage
Despite anticipated policy stimulus, downside risks for
China remain including side-effects from the slowdown in the property market,
said Andrew Pease, Sydney-based chief investment strategist at Russell
Investments Asia Pacific.
“It’s very hard to make a clear prediction until we start to
see the shape of Europe,” he said.
“Asia being a high-beta market, if the world goes into a
risk-off phase on the back of Europe, Asia will underperform. If Europe
resolves its problems, Asia will outperform,” he said.
Pease said the current environment calls for a neutral
stance in allocations and being opportunistic in hunting for bargains, such as
a 10% - 15% drop in equities markets, or corporate credit.
He said investors should avoid markets that performed
strongly in the past couple of years, such as US Treasuries, and they should be
cautious about commodities until China’s growth prospects are clear.
London copper rose 1% to $7 574 a tonne, after the trade
data showed copper imports by China, which accounts for 40% of the refined
metal’s global consumption, rose 12.6% in December from November.
Euro vulnerable
The euro rose 0.2% to $1.2790 on short covering, recovering
from 16-month lows of $1.2666 hit on Monday, but was vulnerable given no
fundamental reasons for its rebound.
“EURUSD continues to trade below $1.2800, and prospects for
EUR remain bleak,” analysts at BNP Paribas said.
Italian and Spanish debt auctions this week are the focus of
the market as the two big eurozone economies are seen as most at risk from the
crisis.
A plunge in eurozone government bond prices on concern about
financing ability eroded capital at European banks which own large amounts of
such bonds. Problems faced by UniCredit , Italy’s largest bank by assets, only
underscored the difficulties of recapitalising and raised fears about the debt
crisis unsettling the financial system.
Shares of UniCredit, the first big lender to tap the market
to repair its balance sheet since new capital targets were imposed, plummeted
again on Monday as it began a rights issue to bolster its capital. Its stock
has lost 45% since it priced the cash call at a big discount last Wednesday and
its market capitalisation has nearly halved.
Asian credit markets were on the defensive side on Tuesday,
with spreads on the iTraxx Asia ex-Japan investment grade index sticking to
late Monday levels.