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Investors eye more support from Beijing

Australia, Japan stumble as infections surge; Yuan gains capped by verbal intervention; China PMI data triggers hopes of more support


(AF) Hong Kong: Asian markets were dragged lower by worries about new infections but China’s markets outperformed after data showed strong spending during the Golden Week holidays, helping official manufacturing PMI to remain broadly unchanged in May.

But trade was lacklustre amid little direction from US markets which are shut due to the Memorial Day holiday.

Japan’s market underperformed amid concern about an extended state of emergency to curb the coronavirus while Australia reported new cases in Victoria and Melbourne sparking fears of more restrictions.

Also on AF: Japan factories show strength as China, US bounce back

Japan’s Nikkei 225 index slipped 0.99%, Australia’s S&P ASX 200 eased 0.25% but Hong Kong’s Hang Seng index edged up 0.1% and China’s CSI300 inched 0.20% higher. Regionally, the MSCI Asia Pacific index retreated 0.81%.

The yuan hit a three-year high against the dollar but then pulled back after officials warned about the speculative bets on the currency.

In a commentary in the official China Securities Journal, Guan Tao warned against herd behaviour that could harm market order and weigh on China’s exporters.

At the weekend, Sheng Songcheng, former director of the surveys and statistics department at PBOC, said the overshot of the yuan signals short-term speculation and is unsustainable.


“This should deter some speculators on yuan appreciation unless those speculators expect the yuan to rise more than 2% even after PBoC’s message to calm the currency,” Iris Pang, Chief Economist, Greater China at ING Bank told Asia Financial, referring to PBOC’s move to raise the FX reserve requirement ratio for financial institutions to 7% from 5%, effective on June 15.

“This kind of administrative measure will be used repeatedly if the PBoC’s jawboning doesn’t work.”

China’s PMI data for May showed overall manufacturing activity maintained steady momentum,

“The PMI readings point to a continued, though uneven, recovery,” said Erin Xin, HSBC’s Economist, Greater China. “We expect Beijing to keep the LPR on hold at 3.85% this year, though more targeted support may be rolled out for the harder hit SMEs.”


Also on Monday, China’s decision to allow all couples to have a third child in a bid to arrest the shrinking birthrate and ageing population, was seen having little impact.

“The immediate impact on population is likely to be positive on the margin but small on the macro level,” said Zhiwei Zhang, Chief Economist at Pinpoint Asset Management.

“This policy has little impact on the trend of declining labor force in the next 20 years. Hence we expect the government will initiate policy to delay retirement to address this issue”


Asia Stocks

Japan’s Nikkei 225 index slipped 0.99%

Australia’s S&P ASX 200 eased 0.25%

Hong Kong’s Hang Seng index edged up 0.1%

China’s CSI300 inched up 0.20%

The MSCI Asia Pacific index retreated 0.81%.


Stock of the day

Food delivery giant Meituan’s shares surged as much as 8% after the company announced a doubling of revenue in its March quarter. It was the top-traded stock on the Hong Kong Exchange by volume.


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Hong Kong: The high risk and cost of ‘zero Covid’ policies

Umesh Desai

Umesh Desai is the Executive Editor at Asia Financial. Prior to this he spent over two decades with Reuters News as Asia Pacific Chief Correspondent in Hong Kong and Bureau Chief in Bombay. Before becoming a journalist Umesh was a credit ratings analyst with Moody's arm in India - ICRA. A chartered accountant by training, Umesh began his career as an equity analyst. His Twitter handle is @umesh_desai

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