Oil Firms Lift Asia Stocks as Traders Stay Cool on China Offer

Energy stocks rallied, boosting Asia’s benchmark gauge after Brent topped $80 a barrel for the first time since 2014.

The MSCI Asia Pacific Index rose a mere 0.1 percent to 174.32 as of 1:33 p.m. in Hong Kong after fluctuating between small gains and losses. The rally in oil prices gave some benchmark indexes a boost in an attempt to play catch-up with U.S. energy stocks, which had their second-biggest rally in a month.

Traders mostly brushed off a report, citing an unidentified official from U.S. President Donald Trump’s administration, that China offered a $200 billion reduction in its annual trade surplus with the U.S. by increasing imports of American products and other steps. But the news did help push the yen to a 16-week low against the dollar, providing support for Japanese exporters in the Topix.

A U.S.-China trade war will affect certain parts of the economy but not all of it, said Alan Richardson, portfolio manager at Samsung Asset Management. He’s also seeing some investor interest in commodity-related stocks, particularly in oil and coal.

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Here’s what strategists are saying:

Highs and Lows

“The trade and protectionism worries will linger for a while yet and there will be highs and lows for the markets,” said Kerry Craig, a Melbourne-based global market strategist with JPMorgan Asset Management.

“This is largely noise against the improving backdrop and realization that the second quarter is shaping up much stronger.”

Still No Clarity

Amid the latest round of talks between U.S. and China, “lack of clarity remains the case,” said Jingyi Pan, market strategist at IG Asia Pte. Ltd. “President Donald Trump appears to be casting his doubts, expressing his lack of confidence over a trade negotiation success” even as reports suggest that China has offered a $200 billion cut in U.S. trade deficit, she said.

Long List of Demands

“The issue here is people think the U.S. has a long list of demands and the Chinese will do only some,” said Joshua Crabb, head of Asian equities at Old Mutual Global Investors AP Ltd. The $200 billion in trade deficit cuts is positive but “people are worried U.S. wants all and China thinks they should meet in the middle.”

10-Year Treasury Yields

Investors may be focused on the sustained move above 3 percent in U.S. 10-year Treasury bond yields and the strengthening dollar, said Alan Richardson, portfolio manager at Samsung Asset Management. There’s also investor interest in commodity-related companies in oil and coal right now, he said.

Waiting for Trump

Investors are waiting to see what the U.S. thinks of the $200 billion offer, said Shane Oliver, head of investment strategy and chief economist at AMP Capital in Sydney. So far, “it’s being balanced by President Trump’s expression of doubt regarding whether the trade talks will work."

— With assistance by Matthew Burgess, Matt Turner, and Tom Redmond

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