Financial markets across Asia experienced a tumultuous start to the week, with major indices moving in different directions amid shifting sentiment and new policy actions. After hitting five-year lows early Monday, Chinese stocks staged a remarkable rebound, bouncing back over half a percent on the day. Meanwhile, Hong Kong diverged from the mainland, shaking off early declines to end nearly flat.
The volatility came as China’s central bank stimulus kicked in, while Hong Kong benefited from pledges to curb illegal market activities. Elsewhere, Japan and Australian services data pointed to easing contractions, but Thailand’s inflation dropped more than expected. Later in the day, JPMorgan Asset Management advised against rushing Fed rate cuts despite robust jobs numbers.
China Rallies From Five-Year Lows as PBoC Liquidity Boost Kicks In
Chinese shares found their footing after a precipitous decline had brought them to their lowest levels in five years. The benchmark CSI 300, comprising the largest companies in Shanghai and Shenzhen, finished 0.65% higher on the day at 3,200.42. The rebound followed an announcement two weeks prior that the People’s Bank of China would cut bank reserve requirement ratios by 50 basis points, releasing more liquidity into the financial system.
Stocks had plunged to ominous milestones early Monday, extending last week’s painful selloff. However, the central bank’s long-awaited stimulus finally came into effect, helping calm market jitters. While economic growth remains tepid, the injection of funds aims to ease tight liquidity conditions ahead of the Lunar New Year holidays later this month.
Analysts characterized the PBoC’s move as the start of an expected policy easing cycle as China emerges from years of crackdowns and COVID-zero restrictions. With conditions still fragile, authorities appear poised to take a more proactive approach in attempting to stabilize markets and combat slowing growth. The reserve ratio cut could free up some $76 billion for lending purposes, though its impact may take time to trickle through the economy.
Hong Kong Reverses Early Decline Despite Ongoing Mainland Selloff
Stock markets in Hong Kong veered upward Monday despite heavy selling pressure continuing on the mainland. After slumping in early trade, the Hang Seng Index recovered to end 0.15% lower at 15,510.01. The turnaround contrasted with another rout in Chinese equities, where the Shanghai Composite sank 1.02%.
The divergence came as mainland stocks extended losses to a sixth consecutive session, while Hong Kong shook off its early slide. Adding confidence, China’s securities regulator vowed over the weekend to protect investor interests and crack down on manipulative activities. The CSRC promised stricter supervision of malicious short-selling, insider trading and fraud in order to stabilize markets.
Nonetheless, small cap shares remained under pressure, with the CSI1000 index of A-shares plunging over 5% at one point before closing down 2.64%. Liquidity conditions have broadly tightened across China’s financial system, putting stress on lower-profile names. The PBoC’s reserve ratio cut may alleviate funding constraints, but market reactions showed continued fragility after last year’s massive selloff.
Fed Advised Against Rushing Rate Cuts Despite Upbeat Jobs Data
Asia markets started the week warily after Federal Reserve Chair Jerome Powell indicated the central bank would take a measured approach to trimming interest rates. His comments suggested the Fed plans to hold off on aggressive easing despite market hopes for a speedy policy pivot after recent robust economic data.
JPMorgan Asset Management concurred that the Fed need not rush into rate cuts given current conditions. While markets are betting on rates peaking below 5% by mid-year, the investment firm expects a more gradual reduction. Its base case envisions 25 basis point cuts starting in June and amounting to 100 basis points this year.
Jonathan Liang, JPMorgan’s Asia fixed income chief, said June seems a plausible time for the Fed to reconsider its hawkish stance. However, he noted less optimistic outcomes could force deeper cuts. The U.S. economy remains relatively healthy for now, with January’s jobs report handily beating expectations. But reduced global growth and tighter financial conditions may warrant increased caution.
Mitsui Fudosan Surges on Reported Activist Demands
Japanese real estate giant Mitsui Fudosan saw its shares soar Monday after reports emerged that prominent activist fund Elliott Management was urging major changes. The stock jumped as much as 11.8% to a record high, closing 6.57% higher on the day.
According to the Financial Times, Elliott sent a letter demanding Mitsui launch a 1 trillion yen ($7.4 billion) share buyback. The move aims to boost returns for shareholders, which Elliott believes are being hampered by Mitsui’s 37% ownership of Tokyo Disneyland operator Oriental Land.
Elliott also reportedly called for Mitsui to sell off its $3.6 billion stake in Oriental, freeing up capital for buybacks and core investments. The demands from the activist investor, which has previous success shaking up Samsung, Twitter and other giants, underscored investor discontent with Mitsui’s strategy.
Thailand Inflation Drops More Than Forecast in January
Thailand received more confirmation Monday that its inflation pressures are easing rapidly after last year’s surge. The headline consumer price index fell 1.11% in January compared to a year earlier, dropping more than the 0.82% decline economists predicted. It also softened further from December’s 0.83% slide.
The January reading marks the third straight month Thailand has registered outright deflation on an annual basis. Core inflation ticked up mildly, however, inching up 0.52% from 0.51% in December. But the overall slowdown should allow Thailand’s central bank to keep interest rates steady at record lows during its policy meeting later this week.
Fading inflation likely stems from lower global commodity prices, still sluggish tourism activity and weak domestic demand. The figures bode well for the Bank of Thailand’s goal of achieving sustainably low inflation within its 1% to 3% target range. With price pressures fading quickly, policymakers have one less worry as they try reviving the economy.
India’s Paytm Extends Loss to 10% Limit Down After Regulatory Blow
Indian fintech firm Paytm saw its stock plunge 10% Monday, hitting the daily downside limit for a second straight session. The selloff extended losses after revelations that the Reserve Bank of India directed the company to stop onboarding new customers due to compliance failures. Paytm shares have cratered 75% since their disappointing November 2021 IPO.
Paytm said the RBI crackdown related to “know your customer” processes and anti-money laundering rules. While existing customers remain unaffected, it cannot add new consumer or merchant accounts. The company stated it was working to strengthen its compliance systems and restore onboarding abilities.
The regulatory shock has deepened Paytm’s year-long slide since its record $2.4 billion offering. Once heralded as India’s leading digital payments provider, Paytm has disappointed investors with its lack of profits and reliance on low-margin services. Critics view it as overvalued even after its monumental plunge.
Growth Slows Marginally for China Services Sector
An influential private sector gauge showed China’s services sector expanded for the 13th straight month in January, though at a slightly weaker pace. The Caixin services PMI dipped fractionally to 52.7 from 52.9 in December, still indicating solid growth overall. However, the survey compiler warned of softening new orders momentum.
Caixin said services employment edged up for the second month running, while firms remained highly confident in the 12-month outlook. But new business inflows showed notable cooling after stronger activity through late 2022. Respondents cited weak domestic demand as a key headwind.
The services slowdown aligns with Manufacturing PMI data last week that also suggested softer expansions ahead. China’s reopening and recovery after years of COVID restrictions remains uneven amid global recession worries. Still, the Caixin surveys show sustainable growth for now following the end of lockdowns and rigid containment policies.
Australia and Japan Services PMIs Signal Easing Contractions
Private sector gauges revealed mild improvements in services activity for Australia and Japan during January. The au Jibun Bank Japan Services PMI rose to 53.1, marking the fastest expansion since September. New business inflows expanded for the first time in five months, supported by the first increase in foreign demand since August.
In Australia, the Judo Bank Services PMI climbed to 49.1 from 47.1 in December. While still showing contraction below the 50 threshold, it pointed to marginal declines compared to sharper previous pullbacks. Export orders continued falling but at a shallower rate, helping stabilize overall activity.
The surveys add to indications that developed economies are navigating past the worst output drops as inflation and interest rate hikes temper. Japan continues benefiting from broader reopening tailwinds after years of border controls. And Australia’s early rate hikes may allow its slowdown to bottom out faster than other countries.
Hong Kong Business Activity Shrinks Again After Brief Expansion
Hong Kong saw marginal business activity declines resume in January following two months of expansion. The city’s PMI fell back below 50 to 49.9, down from 51.3 in December and indicating renewed contraction. The pullback came as demand weakened, with new orders shrinking after having returned to growth in December.
However, the PMI report’s compiler S&P Global noted that output continued rising as firms worked through outstanding business. Backlogs of work fell at the slowest pace in four months, pointing to milder capacity pressures.
Employment also continued to increase across Hong Kong’s private sector, extending the current sequence of job gains to five months. Business confidence remained strongly positive overall about the 12-month outlook.
The up-and-down PMI figures align with an uneven recovery for Hong Kong following the removal of COVID curbs. While activity is regaining momentum, global headwinds have made demand unreliable at times. Tourism and retail sectors in particular face ongoing challenges.
Turbulent Start to February Reflects Mixed Recovery Outlook
Monday’s volatile trading showed investor uncertainty toward the economic landscape as markets reopen after the Lunar New Year. China’s rebound from multi-year lows offered some reassurance after Beijing took more forceful policy action. But activity data revealed uneven recoveries between regions.
Developed economies like Japan and Australia look to be finding firmer footing after inflationary weakness in 2022. However, recession risks linger as central banks maintain restrictive policies for now.
This year is shaping up to be another transitional period, particularly in China after its rigid COVID era. While its growth should improve from 2022’s meager 2.7%, policymakers face a difficult balancing act reviving the economy without inflaming bubbles.
With many variables still in flux, market instability looks likely to continue. But the Black Monday panic that rang in the new year may prove a distant memory if optimism around China’s reopening overrides global consumer weakness. This week’s trading, shortened by holidays, offers an early test of whether bullish sentiment can regain momentum.
