Asia stocks, currencies fall as China data dents recovery hopes

A surprise fall in Chinese retail sales knocked Asia's emerging market stocks and currencies on Friday, on fading hopes the world's second-largest economy could make a swift recovery from its COVID-19 slump. Investors had taken recent data from the world's second largest economy, the first to emerge from lockdowns against the coronavirus, as an indicator it was getting back up to speed, but July retail sales unexpectedly fell and factory output missed estimates.

Asian markets most heavily correlated with Chinese demand and global trade flows fell sharply with Seoul stocks diving 1.6%, while markets in Kuala Lumpur and Bangkok losing around 0.7%. The falls were more muted on currencies, with the won down 0.2% and Indonesia's rupiah around half a percent, while the Philippines peso gained. In China, the yuan was little changed and the Shanghai Composite Index fell by close to a fifth of a percent. "I would say it's more a knee-jerk reaction," said Julian Wee, an investment strategist at Credit Suisse in Singapore, referring to the fall. "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." Data from Malaysia also showed gross domestic product shrank more than expected in the second quarter - its worst contraction in over two decades - but the central bank said the worst was likely over.

Malaysian shares and the ringgit stuck roughly to trading ranges prior to the numbers. The central bank expects the economy to contract between 3.5% and 5.5% this year, before rebounding and growing between 5.5% and 8% in 2021. Traders remain cautious ahead of trade talks between the United States and China on Saturday, at a time where relations between the two are fraught and the U.S. presidential election approaches.

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