Trading was mixed in Asia-Pacific markets on Monday, November 20, as investors reacted to key developments like China keeping interest rates steady and Japan’s Nikkei index surging to 33-year highs.
Nikkei Jumps to Peaks Last Seen in 1990 But Trims Gains
Japan’s benchmark Nikkei 225 index started the trading week with a big surge, crossing above 33,800 in early morning deals to hit levels not seen since May 1990. Export-focused stocks powered the rally as a weaker yen boosted prospects. Domestic investors rotating from bonds to equities also gave a lift to the Nikkei.
However, the headline index pared gains as the session progressed after the stellar opening. It eventually settled 0.59% lower at 33,388.03. The broader Topix index also drifted lower to end down 0.77%.
Analysts said investors booked profits on the initial spike, leading to the market giving up some ground. But overall sentiment remains positive driven by a favorable outlook for corporate earnings and hopes of an economic recovery in China driving exports.
PBoC Stands Pat on Benchmark Rates
China’s central bank, the People’s Bank of China (PBoC), kept its benchmark one-year and five-year loan prime rates unchanged at 3.45% and 4.2% respectively.
This marks the third straight month the rates have been maintained, after the PBoC lowered rates in August to prop up the economy battered by widespread COVID lockdowns and the real estate crisis.
Market watchers opined that holding rates steady reflects the PBoC’s view that current policy measures are adequate to facilitate an economic turnaround as the country gradually eases strict pandemic curbs. Keeping rates on hold provides assurance to investors that policy direction remains stable.
The Chinese yuan edged higher against the dollar following the rates decision, indicating it provided some support. But upside remained capped amid the weak growth outlook for the world’s second-largest economy.
Hong Kong Rebounds Strongly, South Korea Holds Ground
Hong Kong’s Hang Seng staged a powerful comeback after losses on Friday, jumping 1.86% to close at 17,778. The rebound was broad-based with tech stocks also recovering despite heavyweight Alibaba continuing its slide. Alibaba fell over 10% on Friday as its decision to suspend plans for an Ant Group IPO rattled investors.
South Korea’s Kospi benchmark rose 0.86% aided by gains in technology and automakers. Internet giant Naver rallied strongly while Hyundai Motor traded higher. The small-cap Kosdaq saw even larger advances, closing 1.75% up.
Australia’s ASX 200 Lacks Clear Direction
It was a mixed picture for Australian equities as the ASX 200 meandered through the session before finishing almost flat, up just 0.13%. Healthcare and utilities stocks rose firmly but were offset by declines in the materials and energy sectors.
Banks were also generally weaker with Commonwealth Bank down over 1% while Westpac and NAB also dropped. The lackluster mood came even as data last week signaled Australia’s economy performed strongly in the third quarter.
US Market Optimism May Aid Asia-Pacific
Upbeat sentiment following Wall Street’s third consecutive week of gains could positively impact trading in Asia-Pacific markets.
The S&P 500 rallied 2.2% last week, the Nasdaq surged 2.4%, and the Dow gained 1.9% over a three-week streak of gains. This was the first such winning run since July for the Dow and S&P, and since June for the tech-heavy Nasdaq.
Improving US economic indicators and falling bond yields have powered the rally in American equities. Market experts believe the upbeat mood could have a spillover benefit for Asian indices.
But China Uncertainty Persists
However, analysts also caution that volatility is likely to remain high as doubts over China’s growth trajectory in light of the unpredictable COVID situation linger.
Most economists have downgraded China’s full-year GDP forecasts to under 5% as the impact of reopening remains unclear. Sporadic COVID flare-ups leading to localized lockdowns could hamper industrial output and consumer demand. The depressed property market is another overhang.
These factors may impede substantial gains in Asia-Pacific markets, despite the broadly positive global backdrop. Traders are seen staying cautious in the near-term amid fluid conditions.
US Data Could Provide Further Impetus
For the remainder of the week, US economic data will be tracked closely to gauge the health of the world’s largest economy.
Purchasing managers index (PMI) figures for November are due on Wednesday, providing insight into manufacturing and services sector activity. The minutes of the latest Federal Reserve policy meeting will be released on Thursday.
Markets will scrutinize the minutes to gather clues regarding monetary tightening plans. The Fed has already raised rates aggressively this year to fight multi-decade high inflation. Further hints on its rate hike path would have major implications for financial markets globally.
Asia Economies Eye Improved Growth Prospects
Beyond the immediate trading factors, the outlook for Asia-Pacific economies appears to be gradually improving as pandemic impacts fade.
Morgan Stanley recently upgraded its 2023 growth forecast for emerging Asia ex-China to 5.5%, citing resilient domestic demand and strong labor markets. It pointed to economies like India, Indonesia, Malaysia, Thailand and the Philippines benefitting as global supply chain diversification gains momentum.
Capital Economics has a relatively upbeat view on ASEAN economies like Vietnam and expects Australia’s economy to overcome near-term headwinds. It sees Asia-Pacific countries faring better overall compared to the US and Europe next year.
In summary, Asia-Pacific markets faced a mixed day on Monday as China’s rate stance and Japan’s surge to multi-decade highs remained in focus. Lingering doubts around China’s growth outlook may limit substantial near-term gains. But the region’s economic prospects look steadily brighter for 2023 as pandemic woes slowly recede. Improved earnings potential could help Asian stocks add to their recent gains going ahead.