Asian Stocks Trail Wall Street Rally But Covid, Inflation Weigh

China stocks closed up after Beijing promised a cut in the reserve requirement ratio, while Hong Kong and Tokyo were buoyed by falls in US bond yields

 

Asia’s major markets were on the front foot on Thursday after a Wall Street recovery but worries about the ongoing impact of raging inflation, the war in Ukraine and China’s Covid surge weighed on investors.

Chinese stocks closed up after the country’s cabinet said Beijing would use timely cuts in banks’ reserve requirement ratios (RRR) and other policy tools to support the economy, amid the worst Covid-19 outbreak in two years.

The State Council said on Wednesday China would step up financial support for the real economy, especially industries and small firms hit by the pandemic, and will lower financing costs.

 

Also on AF: Yellen Tells China to Help End Ukraine War or Lose Respect

 

“It is very likely that the PBoC could cut RRR by 50bp for most banks in the next several days,” Nomura said in a note. “These monetary measures and other policies are likely to have little positive impact. In our view, refining and adjusting the ZCS [zero-Covid strategy] is key to a growth recovery.”

However, President Xi Jinping said China must not relax its Covid control and prevention measures, state radio reported.

China’s blue-chip CSI300 index rose 1.3%, to 4,191.57, while the Hang Seng Index gained 0.67%, or 143.71 points, to close at 21,518.08.

The Shanghai Composite Index ended the day 1.22%, or 38.83 points, higher at 3,225.64, while the Shenzhen Composite Index on China’s second exchange rose 1.11%, or 22.30 points, to 2,034.48.

Consumer staples climbed 3.7%, with liquor makers up 5.2%, while real estate developers jumped 4.4%. Energy shares gained 3.1%, with coal surging 4.8%, while tourism stocks ended up 2.5%.

Tokyo shares closed higher on Thursday as investors took heart from Wall Street rallies and cheered falls in US yields.

The benchmark Nikkei 225 index rose 1.22%, or 328.51 points, to 27,172.00, while the broader Topix index gained 0.95%, or 17.99 points, to end at 1,908.05.

 

Three Central Banks Raise Rates

Sydney rose 0.6% as Australia posted its lowest unemployment rate in 48 years, while Seoul was flat after South Korea’s central bank raised its key interest rate to the highest level since August 2019 to tame rising inflation.

New Zealand’s central bank raised interest rates by a hefty 50 basis points on Wednesday, the biggest hike in over two decades. The Bank of Canada also raised rates by the same level, making its biggest single move in more than two decades and flagging more hikes to come.

The MSCI world equity index, which tracks shares in 50 countries, added 0.3%, while Wall Street futures gauges were flat.

Hopes that US inflation may have peaked led US Treasury yields to extend their decline, with the dollar also falling. 

The yield on 10-year Treasury notes was at 2.6636%, compared to a three-year peak of 2.836%, before data on Tuesday that showed inflation running less than investors had feared.

MSCI’s broadest index of Asia-Pacific shares outside Japan had earlier risen 0.4%.

 

Key figures around 0810 GMT

Tokyo – Nikkei 225 > UP 1.2% at 27,172.00 (close)

Hong Kong – Hang Seng > UP 0.7% at 21,518.08 (close)

Shanghai – Composite > UP 1.2% at 3,225.64 (close)

Oil – Brent > DOWN 1.1% at 107.63 per barrel

Oil – WTI > DOWN 1.2% at 102.98 per barrel

New York – Dow > UP 1.0% at 34,564.59 (Wednesday close)

London – FTSE 100 > DOWN 0.3% at 7,561.35

 

  • Reuters with additional editing by Sean O’Meara

 

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Sean OMeara

Sean O’Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.