25-7-2023 (SINGAPORE) Asian shares experienced a notable rebound on Tuesday as China’s commitment to bolster its struggling economy provided a much-needed boost to market sentiment. Beaten down Hong Kong and Chinese stocks saw a resurgence, while the dollar weakened ahead of the Federal Reserve meeting scheduled for later in the week.
MSCI’s broadest index of Asia-Pacific shares, excluding Japan, surged by 1.2 per cent, poised to break a six-day losing streak. However, Japan’s Nikkei declined by 0.22 per cent.
China’s stock markets displayed strong gains, with the Shanghai Composite Index surging by 1.55 per cent and Hong Kong’s benchmark Hang Seng Index skyrocketing by 3.4 per cent. The remarkable surge came after China’s top leaders pledged on Monday to enhance policy support for the economy, especially in the wake of a complex post-COVID recovery. Their focus was on boosting domestic demand and signaling further stimulus measures.
Saxo Markets strategists analyzed the meeting readout and noted a cautious approach to economic stimulus with limited commitments. They highlighted explicit recognition of the economic challenges, viewing it as a mildly bullish sign.
Despite the positive sentiment, investors remain cautious about China’s property market. Stocks and bonds in the Chinese real estate industry tumbled to nearly eight-month lows on Monday amid concerns about a cash crunch at two major developers in the country. In response, state news agency Xinhua reported that China will make necessary adjustments and optimizations to property policies in response to significant changes in the property market’s supply and demand relationship.
Erin Xin, an economist for Greater China at HSBC, observed that the readout could signal further adjustments to property policies and a more supportive stance for the sector. She believes policymakers may proceed with caution regarding financial risks but offer additional policy support to stabilize the property market.
In the currency market, the offshore Chinese yuan gained strength, rising by 0.4 per cent to 7.1573 per dollar. The dollar index, which measures the U.S. currency against six major rivals, showed a slight ease of 0.108 per cent. The Japanese yen, on the other hand, gained 0.07 per cent against the dollar, reaching 141.36 per dollar. The euro witnessed an uptick of 0.11 per cent to $1.1074, following a dip to a two-week low of $1.1059 earlier in the session after a survey revealed a larger than expected contraction in euro zone business activity in July, reigniting recession concerns.
Market participants anticipate the European Central Bank (ECB) to increase interest rates by 25 basis points on Thursday, though the future trajectory remains uncertain.
In the United States, business activity declined to a five-month low in July, primarily due to decelerating growth in the service sector, according to a closely monitored survey on Monday. The slowdown may be viewed positively by the Federal Reserve, which seeks to curb inflation.
Analysts widely expect the Fed to raise interest rates by 25 basis points on Wednesday, with investors and economists predicting it to be the last hike in the current tightening cycle.
In the energy market, U.S. crude oil registered a modest gain of 0.17 per cent, reaching $78.87 per barrel, while Brent crude stood at $82.84, rising by 0.12 per cent on the day.
Spot gold saw an increase of 0.4 per cent, reaching $1,961.43 per ounce.
Furthermore, U.S. wheat futures achieved a five-month high on Tuesday, extending gains following Russia’s attacks on Ukrainian ports and grain infrastructure, raising concerns about global supplies and food security.
