Market Close Jan 04

Asian markets make firm start to 2021 on recovery signs

Japan underperforms as border controls and emergency status considered; Dollar seen weak in Biden era; China economic momentum easing but output tipped to be above trend

Asian markets make firm start to 2021 on recovery signs
A welder works in a ship-equipment manufacturing factory in Nantong in this file photo from March 2020. Reuters.

(ATF) Hong Kong: Asian markets made a flying start to 2021 as the confidence of vaccine rollouts and sustained economic recovery pushed investors to pile into risky assets. Wall Street’s blistering year-end session last week also added fuel to the rally. 

Regionally, the MSCI Asia Pacific index advanced 0.4% as China PMI showed the world’s second largest economy continued to recover from the pandemic.

“The latest manufacturing surveys suggest that factory activity remained strong in December but that the pace of expansion has started to ease,” said Julian Evans-Pritchard, Senior China Economist at Capital Economics.

He said that although momentum was easing, output is likely to remain above-trend for a while and flattering base effects from the weakness in Q1 last year will ensure that year-on-year growth rates rise further in the near-term. 

Elsewhere, India's manufacturing sector had another positive month as control over the virus outbreak, and ongoing policy support drive a steady recovery in economic activity.

Australia’s S&P ASX 200 jumped 1.47%, Hong Kong’s Hang Seng index climbed 0.87%, and China’s CSI300 added 1.08% but Japan’s Nikkei 225 index eased 0.68% after Prime Minister Yoshihide Suga said border controls and a state of emergency were being considered to curb the spread of the coronavirus. 

That would pose a risk to Japan’s economic recovery after factory activity ended a record 19-month run of declines in December, data published on Monday showed.

"Japanese manufacturers signalled a broad stabilisation in operating conditions at the end of a tumultuous year, as the headline PMI registered at the 50.0 no-change threshold in December,” said Usamah Bhatti, an IHS Markit economist, said.

“Businesses reported a sustained increase in optimism, with a third of respondents predicting a rise in output over the coming 12 months.”

On Thursday, Wall Street ended 2020 at all-time highs – the Dow Jones Industrial Average and the S&P 500 posted new peaks following the Nasdaq’s record earlier in the week. 

In 2020, the S&P 500 gained 16.3%, the Dow 7.2% and the Nasdaq 43.6%, the highest annual gain for the benchmark since 2009. Since the US stock market bottomed on March 23, the S&P 500 has risen 68%.

Safe havens wilted as risk appetite was strong, US Treasuries were sold and the dollar weakened. The 10-year US Treasury yield rose two basis points to 0.93% and the dollar fell 0.5% to 89.53.

“We doubt that Treasury Secretary nominee Yellen will take any practical steps to strengthen the USD,” Steve Englander, Standard Chartered Head of Global G10 FX Research, said.

“She is as aware as anyone that a strong dollar complicates the Fed’s efforts to raise inflation, may damage the US export sector, and could do harm to EM borrowers of USD. Borrowing costs for US businesses are very low, so USD strength is not needed to convince foreigners to lend to the US on favourable terms.” 

This outlook and the expectation of prolonged phase of low interest rates gave strength to gold which jumped 2% to $1,932 per ounce. 

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Asia Stocks

· Japan’s Nikkei 225 index eased 0.68%

· Australia’s S&P ASX 200 jumped 1.47% 

· Hong Kong’s Hang Seng index climbed 0.87%

· China’s CSI300 added 1.08%

· The MSCI Asia Pacific index advanced 0.40%.

Stock of the day

China Mobile fell as much as 4.5% after the telecom company was blacklisted by the New York Stock Exchange (NYSE). The NYSE issued a statement on December 31 stating that in compliance with President Donald Trump's executive order prohibiting Americans from investing in “Chinese companies with military backgrounds”, three listed companies – China Unicom (Hong Kong), China Mobile and China Telecom – would be delisted.

Asian markets 2021 recovery