Asia Stocks Rally But Stagflation, War Cast Long Shadow

 

Asian stocks advanced on Wednesday buoyed by an upbeat Wall Street but growth fears, the risk of stagflation and war in Europe continue to weigh on sentiment.

The World Bank cut its global growth forecast by nearly a third to 2.9% for 2022 on Tuesday, pointing at Russia’s invasion of Ukraine and the economic fallout from the Covid-19 pandemic as major recession risks.

But despite the gloomy outlook US stocks rallied to end higher for a second straight day and that fed the mainly positive mood in Asia.

 

Also on AF: Geely-Backed Fund Invests $108m in Radar Imaging Firm

 

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.9%, narrowing from morning gains but recouping most of its losses in the previous session.

Japan’s economy shrank slightly less than initially reported in the first quarter, as private consumption remained resilient and companies rebuilt inventories. Gross domestic product in the world’s third-biggest economy contracted by 0.1%, beating median market expectations for a 0.3% drop.

The benchmark Nikkei 225 index gained 1.04%, or 290.34 points to end at 28,234.29. The broader Topix index rose 1.18%, or 22.95 points, to 1,969.98.

Hong Kong’s Hang Seng Index rose 2.24%, or 482.92 points, to 22,014.59, lifted by its EV and tech firms. Carmaker BYD’s shares ended 3.98% higher in Shenzhen and were up more than 3% in late trade in Hong Kong after it said it was poised to become a Tesla battery supplier.

On the mainland, the Shanghai Composite Index gained 0.68%, or 22.03 points, to 22,014.59, its highest close since April 6, as consumer firms extended their rally on hopes for a demand recovery on easing Covid-19 restrictions.

At the close, the blue-chip CSI300 index was up 0.97% at 4,219.81, its highest close since April 8.

 

BNP Optimistic on China Policies

Analysts at BNP Paribas said equity investors were more optimistic about China’s growth stabilisation policies as Covid-19 lockdowns eased, while sounding a note of caution.

“Our economists expect the government to maintain the principle of dynamic zero-Covid, albeit revise the implementation to take account of the recent growth slowdown and minimise the economy impact,” they said.

“However, the highly infectious nature of the Omicron variant suggests the equity market might be more susceptible to more start-stop cycles in the near-term.”

The smaller Shenzhen index ended up 0.52% and the start-up board ChiNext Composite index was higher by 0.85%.

Taiwan’s benchmark index climbed 1% to lead gains, followed by Indonesia’s, which traded 0.7% higher. 

Stocks in Malaysia advanced but dropped in India with Mumbai’s signature Nifty 50 index down 0.55%, or 90.25 points, to close at 16,326.10.

 

MSCI World Equity Index Up

Globally, European stocks slipped and Wall Street futures were in the red as worries that central bank tightening will stifle global growth weighed on markets.

At 0756 GMT, the MSCI world equity index, which tracks shares in 50 countries, was up 0.1%. But Europe’s STOXX 600 was down 0.3% on the day, weighed down by banks after Credit Suisse warned it was likely to see a group-wide loss in the second quarter.

Nasdaq futures and S&P 500 e-minis were both down around 0.5%.

The 10-year US Treasury yield held just above 3%, having fallen on Tuesday after Target Corp said it would cut prices, boosting bets that the worst of inflation may be past.

“The tail is wagging the dog, rates are driving equities,” said Guillaume Paillat, a multi-asset portfolio manager at Aviva Investors.

“The fundamentals are still unclear in terms of how long is it going to take for inflation to come down, but for the time being there’ll probably be room for consolidation.”

The dollar index was a touch higher, at 102.62. The Japanese yen hit fresh 20-year lows versus the dollar and a seven-year low against the euro due to expectations that the European Central Bank’s tightening policy will leave the Bank of Japan as an outlier with its ultra-easy monetary policy.

 

Key figures

Tokyo – Nikkei 225 > UP 1.04% at 28,234.29 (close)

Hong Kong – Hang Seng Index > UP 2.24% at 22,014.59 (close)

Shanghai – Composite > UP 0.68% at 3,263.79 (close)

New York – Dow > UP 0.80% at 33,180.14 (close)

 

  • Reuters with additional editing by Sean O’Meara

 

Read more:

China’s BYD Working with Tesla on EV Battery Supply Deal

China Lockdowns Shred Consumer Confidence, Threaten Recovery

Sean O’Meara

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.