Asian equities see rotation trade profit-taking

The overnight session in New York saw a sense of calm return after the feeding frenzy of the day before. The technology work from home sectors remained under modest pressure, with the Nasdaq falling 1.37%. The S&P 500, will a more balanced make-up, finished almost unchanged, down 0.14%. Meanwhile, the legacy industry heavy Dow Jones rose 0.80%.

Some dialling back of the rotation trade is evident in Asian markets today. The Nikkei 225 has jumped 1.75%, while the Kospi and the Taiex have risen 1.0%, having underperformed yesterday. Yesterday’s stars, which are heavy in cyclical banking, property and resource stocks, have retreated this morning. Singapore has fallen 0.90%, Kuala Lumpur is down 0.80% with Manila down 1.0%.

Greater China is mostly neutral. The Shanghai Composite is unchanged, with the CSI 300 down 0.40%. Hong Kong is also unchanged. One outlier is the ever-effervescent Australian markets, heavy in resource and banking stocks. The All Ordinaries and ASX 200 are both 1.50% higher.

The moves look corrective, with trading likely to be muted due to the US Veteran’s Day holiday today. As we advance into the year-end though, investors will have to get used to an increased amount of two-way intra-day volatility in their portfolios.

Although the vaccine-inspired sector rotation trade has calmed down overnight, we can expect it to resume. Other vaccine manufacturers should start releasing their phase-3 results into the year-end. Results, positive or negative, are likely to spur renewed volatility in the rotation trade. Throw in Trump-induced surprises, and markets are unlikely to get quieter.

Asset prices globally remain well supported by monetary policy. What may change is the sectors that capital deploys in. That trend will continue into 2021, as no central bank in the world, except perhaps the PBOC, will be thinking of anything except ultra-easy.