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Business Maverick

Asia stocks rise as China mulls new rescue package: markets wrap

Asia stocks rise as China mulls new rescue package: markets wrap
People enter a subway in front of an Apple advert in Shanghai, China, on 9 July 2021. Gains in Apple, Microsoft, Nvidia, Alphabet, Amazon.com, Meta Platforms and Tesla have powered the resurgence on Wall Street. (Photo: EPA-EFE / Alex Plavevski)

Asian shares advanced as Chinese stocks rallied on news that legislators are considering new rescue measures to stabilise a slumping market.

A gauge of Chinese firms listed in Hong Kong jumped as much as 3.8%, while the CSI 300 mainland benchmark erased earlier losses to rise 0.3%. Bloomberg News reported on Tuesday that authorities are seeking to mobilise about 2 trillion yuan ($278-billion), mainly from the offshore accounts of Chinese state-owned enterprises, as part of a stabilisation fund to buy shares onshore. They have also earmarked at least 300 billion yuan of local funds to invest in onshore stocks.

The development followed Chinese Premier Li Qiang’s pledge on Monday of using more “forceful” measures to arrest the country’s stock rout. 

The yuan swung to a gain against the dollar. 

“The potential support package should be able to stem declines in the short term and stabilise markets into the Lunar New Year, but state buying alone has historically had limited success in turning around market sentiment if not followed up by further measures,” said Marvin Chen, a Bloomberg Intelligence analyst. 

Elsewhere in Asia, Japanese equities looked poised for a third straight day of increases before the Bank of Japan’s monetary policy decision, while those in South Korea and Australia also climbed. 

In Japan, the central bank is expected to keep its main monetary policy settings steady Tuesday. Attention will shift on how governor Kazuo Ueda assesses progress made toward achieving the sustainable inflation needed for ending the negative interest rate. The yen was steady. 

The lingering concerns about Chinese equities are in stark contrast to the US, where investors are weighing strong economic signals and prospects for corporate earnings. Wall Street shares are shaking off a rocky start to the year on bets the Federal Reserve will cut rates and the artificial-intelligence boom will keep fueling profit growth. 

The S&P 500 hovered near 4,850 on Monday. Treasuries were flat in early Asia trading after 10-year yields declined two basis points to 4.10% on Monday. The dollar was little changed as well.

“The story is changing for bulls,” said David Donabedian at CIBC Private Wealth US. “Investor optimism had been driven by the belief there would be aggressive rate cuts by the Fed. Now investor belief has pivoted to view the economy as bullet-proof. No matter how high interest rates go, the economy will continue to glide right through.”

Back to the highs

Last week’s record close for stocks in the US has pulled valuations back to the highs seen last July. But a closer look shows that the market isn’t as expensive as it appears, according to Citigroup’s Scott Chronert.

Gains in Apple, Microsoft, Nvidia, Alphabet, Amazon.com, Meta Platforms and Tesla have powered the resurgence on Wall Street. The equally weighted version of the S&P 500 strips out some of their outsized influence and results in a ratio of around 16 times forward earnings, a discount of 17% to the benchmark’s standard valuation.

“With AI set to remain the key theme driving global tech stocks again this year and the rest of the decade, we maintain our preference for the semiconductor and software sectors and see opportunities in those involved in memory and AI edge-computing,” said Solita Marcelli at UBS Global Wealth Management.

Even as the S&P 500 closed on Friday at an all-time high, money managers and analysts are contending with data that signals US economic resilience and Fed officials who’ve pushed back against reducing interest rates too soon.

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