Market Close Jan 12

Reflation trade lifts Asian stocks

Gold rebounds off 200-day moving average; US Treasuries to remain under pressure; Hong Kong outperforms as investors buy US sanctioned stocks

Reflation trade lifts Asian stocks

(ATF) Hong Kong: Asian markets were broadly higher as investors bet that improving economic prospects and vaccine rollouts would boost asset prices.

And as governments across the introduce fiscally supportive policies investors were positioned for reflation trades even as they raised their bets on acceleration in rotation trades.

Japan’s Nikkei 225 index edged up 0.09%, Hong Kong’s Hang Seng index vaulted 1.32% and China’s CSI300 soared 2.85% but Australia’s S&P ASX 200 dipped 0.27% as easing commodity prices weighed on the mining heavyweights. Regionally, the MSCI Asia Pacific index advanced 0.39%.

Hong Kong stocks outperformed as mainland-based investors piled into sanctioned stocks, including China Telecom, China Mobile and China Unicom, which rose between 7% and 11%.

Stronger rebound

“Notwithstanding the rise in Covid-19 cases in the second wave in both Europe and the US, the economic outlook has brightened over recent months,” said Schroders' Paul Grainger, Head of Global Multi-Sector Fixed Income and James Bilson, Fixed-Income Strategist. 

“We have seen both a stronger rebound and more pent-up demand than looked likely during the summer. This, combined with the positive news on vaccine efficacy, brings forward hope for an end to the most acute problems of the health crisis and a return to something closer to “normal” everyday life.”

US Treasuries remained under pressure with the 10-year yield rising 2 basis points to 1.16% with more selling expected as US President-elect Joe Biden is expected to unveil trillions of dollars in new economic stimulus once he enters the White House.

And this could reset expectations for a range of asset classes.

“Rising yields historically have also supported value stocks and hence provides some important impetus for the current value stock rally to continue,” said Tai Hui, Asia Chief Market Strategist at JPMorgan Asset Management. “Banks benefit from a steeper yield curve as this implies wider interest margin, as well as higher levels of activity with a recovering economy.

“We think there is room for 10-year Treasury yields to rise 20-40bps from the current level in the months ahead, especially if the rollout of vaccination is smooth, with high take up rates by the general public. However, the Fed is expected to stand ready to prevent long end of the yield curve derailing recovery. Meanwhile, short term interest rates should be anchored close to zero, implying a steeper yield curve.”

Gold continued to rise with a gain of 0.67% to $1,860 per ounce, bouncing off its 200-day moving average following the overnight selling.

Also on Asia Times Financial

Asia Stocks

  • Japan’s Nikkei 225 index edged up 0.09%
  • Australia’s S&P ASX 200 dipped 0.27% 
  • Hong Kong’s Hang Seng index vaulted 1.32%
  • China’s CSI300 soared 2.85%
  • The MSCI Asia Pacific index advanced 0.39%

Stock of the day

Investment banking group Value Partners rose as much as 6.5% after it said net profit would more than double in the year 2020 driven by fee income.