Weak China data hurts Asian marts

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    Most of Asia’s stock markets weakened as a surprise drop in China retail sales dented hopes of a swift recovery from the COVID-19 impact at the world’s second-largest economy, while currencies stayed muted as the dollar steadied.

    Markets that heavily correlate with Chinese demand and global trade flows dropped with Seoul stocks diving 1.2 percent, and Kuala Lumpur and Bangkok dropping more than 0.6 percent each.

    China’s July retail sales unexpectedly fell and factory output missed estimates, dampening investor sentiment that stemmed from upbeat recent data from the country that was the first emerge from lockdowns.

    “It’s more a knee-jerk reaction,” said Julian Wee, an investment strategist at Credit Suisse in Singapore, referring to some of the falls.

    Indonesia and Taiwan markets edged higher, taking relief from the view that reopening of China’s economy was taking place. Analysts said the data points to some improvement in the domestic Chinese economy.

    “The data overall indicates that the reopening is still proceeding smoothly in North Asia and the vigilance of the authorities in both China and Korea suggests a meaningful reversal of the reopening is unlikely,” Wee said.

    In China, the Shanghai Composite Index rebounded from its initial dip to rise 1.1 percent, while the yuan was little changed.

    However, traders remain cautious ahead of the US-China trade talks on Saturday, with relations between the two countries remaining fraught in the run up to the US election.

    In Malaysia, shares and the ringgit were lower, but stuck to trading ranges prior to domestic data that showed the economy shrank more than expected in the second quarter, its worst contraction in more than two decades.

    The country’s central bank also sharply cut its annual GDP forecast, but said the worst was likely over and expected economic activity to gradually pick up in the second half.

    Next week, it will be Thailand’s turn to report a likely sharp drop in its second-quarter GDP, while Indonesia’s central bank will meet to decide monetary policy.