Asia-Pacific benchmark index enters bull market thanks to China reopening

The Chinese and Hong Kong flags flutter in front of the Exchange Square complex in Hong Kong on February 16, 2021.

Zhang Wei | China News Service via Getty Images

The Asia-Pacific region’s leading index entered a bull market this week, fueled by a rally in Chinese stocks on optimism about the country’s reopening and the slowdown in the Chinese stock market U.S. dollar on prospects for a pivot in the Federal Reserve.

the MSCI Asia Pacific Index hit a high of 162.33 on Tuesday — around 21% higher than its 52-week low of 133.93 set on Oct. 24, according to Refinitiv data. A bull market is technically defined as a rise of 20% or more from recent lows.

The index rose 1.87% on Tuesday to end the Asian session at 161.77. For regional stocks, the Hang Seng Index hit an intraday high of 21,470.69 on Monday, or 47% higher than at the end of October.

The Nasdaq Golden Dragon China Index also hit a low of 4,468.54 on Oct. 24 but has since risen more than 70% to close Monday’s US trading session at 7,669.75.

“The market is betting on a mild recession in some parts of the world while inflation continues to fall, along with a strong start for the Chinese economy,” wrote Saxo Capital Markets’ APAC equity strategy team in a Tuesday note.

“The rally was fast and furious, so it’s only natural to expect some profit-taking,” they wrote in a note.

risk taking

Saxo also said that despite the rally in Asia-Pacific markets overall, risks will remain.

“The market is looking forward to growth too early as there is still a lot of uncertainty,” it said.

Company strategists said corporate earnings and Bank of Japan’s monetary policy remain risks to the region. Still, they said Asian markets have room to outperform this year.

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Japan’s capital Kern recorded on Tuesday inflation of 4%, beating Reuters estimate of 3.8% and staying above the central bank’s target of 2%.

“With Tokyo CPI numbers leading the broader print, there are clear indications that further upward pressure is likely to continue and the BOJ will continue to keep an option for policy adjustment alive,” said Saxo Capital Markets.

A man guides a bull during a ceremony to celebrate the New Year opening of South Korea’s stock market at the Korea Exchange in Seoul on January 2, 2023. (Photo by Jung Yeon-je/AFP) (Photo by JUNG YEON-JE/AFP via Getty Images)

Jung Yeon-je | AFP | Getty Images

Not all emerging markets

During Shanghai composition in mainland China they rose about 9% from their October lows and Australia’s S&P/ASX200 up 10% from recent lows – South Korea’s kospi and Japan’s Nike 225 have shown a more volatile trajectory.

Economists at Goldman Sachs said China’s reopening may not boost emerging markets at the same time.

“Traditionally, Korea and Brazil are the strongest performers in Chinese equity rallies, but these two markets have lagged since late November,” Caesar Maasry, head of EM cross-asset strategy at Goldman Sachs, said in a statement.

“Outside of China, we are highlighting Korea as a top rebound candidate as we believe interest rate volatility will decline in 2023,” Maasry wrote, adding that higher rates weighed on so-called “growth” stocks.

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