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Asian Markets Move Higher

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Asian Markets

Asian markets mostly rose Monday, extending a global surge, as a loosening of China’s Covid rules and plans to help its property sector followed a drop in US inflation that eased rate hike fears.

Equities rocketed last week and the dollar sank after data showed US price rises eased in October, providing the Federal Reserve with room to take its foot off the pedal in tightening monetary policy.

The news led some commentators to suggest a feared recession in the world’s top economy could be shallower than first feared, or might be averted entirely.

The optimistic mood was given an extra injection late Friday by news that Beijing would relax some of its strict Covid-19 restrictions, a day after officials vowed to stick to their zero-tolerance strategy that has hammered growth.

Authorities have also reportedly unveiled a 16-point plan to support the beleaguered property sector, a major component of the country’s sprawling economy

The industry has come under immense pressure since China imposed a number of restrictions in 2020 aimed at reeling in debt, with major developers teetering on the brink of collapse.

The news indicates the leadership is beginning to focus on supporting the economy, a crucial driver of global growth.

“It’s a meaningful easing,” said Larry Hu of Macquarie Group.

“It seems that the room for policy change has widened on various fronts after the Party Congress (last month), including for the two major headwinds to the Chinese economy: Covid Zero and property.”

Nomura’s Lu Ting said the support for the developers was “the most crucial pivot since Beijing significantly tightened financing of the property sector”.

“We believe these measures demonstrate that Beijing is willing to reverse most of its financial tightening measures,” he added.

“Those cash-strapped developers (especially private ones), construction companies, mortgage borrowers and other related stakeholders can now breathe a sigh of relief.”

He warned, however, that the sector continued to struggle and the “measures may have little direct impact on stimulating home purchases”.

In early trade, Hong Kong led gains again — having soared more than seven percent Friday — with property firms the best performers.

Shanghai, Sydney, Singapore, Seoul, Taipei and Manila were all well up, though Tokyo was hit by profit-taking. There were also small losses in Bangkok, Jakarta and Wellington.

While the mood has lightened after the US inflation read, there is still a sense of trepidation among traders who fear the Federal Reserve will continue to lift borrowing costs while analysts warn last week’s rally may have been overdone.

“It was always clear that it would be easy to bring inflation down from 9-10 percent to 4-5 percent,” said SPI Asset Management’s Stephen Innes.

“Pushing it back to two percent could be much more complicated and require higher rates for longer. Hence, the central bank fight is far from over. But for now and until an indication of inflation proves stickier than expected, risk-on could roll on a bit further.”

Still, the yen, pound and euro held most of their gains against the dollar, which came in reaction to the consumer price index reading.

Traders are keenly awaiting a meeting later in the day between US President Joe Biden and Chinese counterpart Xi Jinping, with hopes for an easing of tensions between the superpowers.

The two are due to meet at the G20 summit in Bali, with Biden saying he wanted to repair lines of communication and help establish “guardrails” to keep the competing superpowers from veering into conflict.

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S. Jack Heffernan Ph.D. Economist at Knightsbridge holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Crypto, Mining, Shipping, Technology and Financial Services.