(ATF) Asian markets were broadly higher on Thursday driven by economic optimism but gains were capped as investors braced for Beijing’s response to the US decision to revoke Hong Kong’s special status.
Japan’s Nikkei extended gains after the world’s fourth largest economy approved a $1.1-trillion stimulus plan with banks, insurance companies and steel producers boosting the Nikkei 225 by 2.1%.
The South Korea benchmark Kospi was up 0.8% after the Bank of Korea cut interest rates by 25 basis points (bps) to a record low of 0.5%, while Australia’s S&P ASX 200 index leapt 2.4% on the back of gains by banking stocks.
But Hong Kong’s Hang Seng index fell 0.93% and the CSI 300 was down 0.44% after US Secretary of State Mike Pompeo told Congress overnight that Hong Kong no longer enjoys sufficient autonomy to justify continuing to treat it any differently from the People's Republic of China.
“The implications for merchandise trade are actually very modest in their implications for the Hong Kong economy. 99% of Hong Kong exports to the US are re-exports from a third economy – mostly China – and are already taxed in the US on the basis of origin, not as Hong Kong goods,” Michael Spencer, chief economist at Deutsche Bank, said.
But he said there could be other implications for Hong Kong’s rating by the three global rating agencies, which have rated the city 1-3 notches higher than China.
Capital investments 'may have to leave'
“Likewise, if the US government is treating Hong Kong on par with China, perhaps equity index providers will do the same. Hong Kong is in the MSCI World index, for example, along with other developed markets. China is in the emerging markets index. Should Hong Kong be reclassified as an emerging market, along with Shanghai and Shenzhen, a very large share of capital invested in the Hong Kong market will have to leave,” he said.
Credit markets were strong with several deals in the primary market as issuers capitalised on investors’ hunger for yield. The Asia IG index was marginally tighter at 98/100 bps and sovereign CDS moved in 1-3 basis points.
Overnight the Dow Jones Industrial Average rose 2.21%, the S&P 500 SPX advanced 1.48%, and the Nasdaq Composite edged up 0.77%, driven by hopes of an economic recovery as lockdowns were eased.