Business Maverick

Business Maverick

Rally in Hong Kong stocks bolsters Asian equities: markets wrap

Rally in Hong Kong stocks bolsters Asian equities: markets wrap
A seeding rig prepares to plant spring wheat near Luseland, Saskatchewan, Canada, on Tuesday, May 23, 2023. (Photo: Heywood Yu/Bloomberg via Getty Images)

A gauge of Asian equities held a small gain on Wednesday, supported by a rally in Hong Kong stocks amid hopes for stimulus in China and a positive sign in geopolitics.

The city’s Hang Seng Index advanced more than 1%, set for the highest close in more than two weeks, while the market’s technology measure jumped by about twice that.

Japanese stocks erased gains amid selling in the electric appliances sector, a tick up in the yen and positioning ahead of an expiry in equity futures contracts.

With traders on the lookout for more government help to support China’s tepid economic recovery, optimism for stimulus is rising after authorities asked the nation’s biggest banks to lower their deposit rates. Bloomberg Economics expects the People’s Bank of China to lower its one-year benchmark interest rate “as soon as mid-June”.

Meanwhile, US Secretary of State Antony Blinken plans to visit China in the coming weeks, providing scope for improvement in fraught relations between Washington and Beijing, which have weighed on stocks in Hong Kong and Shanghai.

At current valuations, it’s probably good to go a bit overweight on Chinese stocks, according to Ayaz Ebrahim, emerging market and Asia Pacific equities portfolio manager at JPMorgan Asset Management. Morgan Stanley’s chief China equity strategist, Laura Wang, said she expected to see 9% earnings growth this year, supported by the government’s measures.

US stock futures were little changed on Wednesday. A rotation into financial shares on Tuesday suggested the breadth of the S&P 500’s recent rally might extend beyond technology soon. While a decline in Apple Inc. crimped gains, the benchmark gauge still rose 0.2%. The KBW Regional Bank index added more than 5% and the Russell 2000 climbed 2.7%.

In currency markets, a gauge of greenback strength fell 0.1%. The yen appreciated. The Turkish lira dropped more than 2% to a record low.

Government bond yields in Australia and New Zealand were higher at the short end of the curve. Treasury yields were steady across tenors after a Treasury bill auction announcement weighed on short-dated US bonds on Tuesday.

The small gain on Wall Street on Tuesday still left the S&P 500 just short of a bull market. The mood across global markets has been cautious with some questioning if prices have run up too fast on the hype for artificial intelligence.

In commodities, gold was little changed. Oil fell after giving up gains Tuesday off news of Saudi Arabia’s supply cut. Wheat surged after Ukraine said Russian forces blew up a giant dam in the country’s south.

The World Bank said in a report on Tuesday the global economy is in a precarious situation as sharp interest-rate hikes hit activity and stir vulnerabilities in lower-income countries. Those fears have suppressed equities.

But with the rate of US inflation still high, traders increasingly expect the Federal Reserve will hold rates steady at its June meeting, while keeping the option for hikes later on open. Former vice-chair Richard H. Clarida also said on Tuesday it was unlikely the US central bank will start cutting rates until 2024. DM

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