Stocks were mixed in Asia on Wednesday with markets in Japan and Australia rising, but slipping lower in China and India.
Indices have rebounded in China recently, but there is lingering concern over the zero-Covid policy and the risk it poses to the economy.
Shanghai – China’s financial hub – sprang back to life after two months of bitter isolation under a ruthless Covid-19 lockdown.
This comes after China’s cabinet announced a package of 33 measures covering fiscal, financial, investment and industrial policies on Tuesday to revive its pandemic-ravaged economy.
However, analysts expect the Chinese economy to contract in the second quarter, and the recovery to be a grinding process heavily dependent on Covid developments, with consumers and businesses unlikely to regain confidence immediately.
The bluechip CSI300 Index was down 0.2%, while the Shanghai Composite Index fell 0.1%. Stocks in Hong Kong’s Hang Seng Index also fell 0.6%.
“Much has been made of the ending of Shanghai restrictions today, with many seeming to think it offers an instant panacea to an Asian slowdown. Unfortunately, I must add a word of caution here,” wrote Jeffrey Halley, a senior Asia Pacific market analyst with OANDA.
“China’s zero-Covid strategy has not suddenly gone away… any returning outbreaks in Beijing or Shanghai or Shenzhen, etc, will put China back to square one.”
Song Xiangqian, chairman of private equity firm Harvest Capital, expects a full recovery to pre-pandemic levels to take years.
S&P Global Ratings estimates the broad measure of non-performing assets could worsen to 6.5% for Chinese banks in 2022, as China’s Covid wave could add 1.1 trillion yuan in bad loans.
Auto Shares Rally in Japan
Japanese shares were boosted by a rally in automakers after an analyst report gave positive earnings outlook for the sector, however caution ahead of US monthly non-farm payroll numbers capped gains.
The Nikkei share average advanced 0.65% to close at 27,457.89, while the broader Topic climbed 1.36% to 1,938.64.
“For the Nikkei to cross its most recent high on April 21, we need to see some catalysts that would ease investor sentiment,” a strategist at a domestic brokerage said, adding that Wall Street’s gain would also be needed.
The three major US stock indexes closed lower overnight, as volatile oil markets kept soaring inflation in focus and investors reacted to hawkish comments from a Federal Reserve official.
Nissan Motor surged 7.77%, Toyota Motor gained 3.53% and Honda Motor advanced 4.3%, after JP Morgan analysts said in a report that Japanese auto companies are likely to post record profits this year, as they raise vehicle prices and cut costs to mitigate the hit from soaring inflation.
Australia GDP Gain Beats Forecasts
Australian shares also ended higher after better-than-expected growth data and expectation of further acceleration offered hope that the economy would hold up well in the face of rising interest rates.
The S&P/ASX 200 index climbed 0.3% to 7,234 points, though gains were capped by a plunge in battery metal firms that weighed on a broader mining sub-index.
Data from the Australian Bureau of Statistics showed gross domestic product rose 0.8% quarter-on-quarter, topping market forecasts of a 0.5% gain.
“Today’s GDP illustrates that there is support for the economy to operate with higher interest rates,” Kerry Craig, global market strategist at JP Morgan Asset Management, said.
“We expect a larger 40 basis points rate hike by the RBA this month as it shifts to getting back to 0.25% increments in policy moves.”
Heavyweight financials advanced 1.2%, with all four top banks adding between 0.8% and 2.3% each.
However, lithium and rare earth miners skidded after Goldman Sachs on Sunday forecast a sharp correction in lithium prices over the next two years.
India Shares Slide
Meanwhile, Indian shares settled lower, dragged by pharma and technology stocks, while data showed that the country’s economic growth slowed to the lowest in a year during the March quarter.
After see-sawing between gains and losses for most of the session, the NSE Nifty 50 index ended 0.37% lower at 16,522.75 and the S&P BSE Sensex finished down 0.33% at 55,381.17.
“We are moving into a consolidation phase, investors might not be all that keen to push decisions or put money on the table ahead of India central bank’s monetary policy decision next week,” said Anand James, chief market strategist at Geojit Financial Services.
Most major Nifty sub-indexes settled lower, with the IT and pharma indexes leading declines to end down 1.4% and 1.3%, respectively.
However, slight gains in financial stocks limited losses.
On Tuesday, government data showed India’s gross domestic product grew 4.1% year-on-year in January-March, slowed by weakening consumer demand amid soaring prices.
India’s factory activity, meanwhile, expanded at a better-than-expected pace last month, data on Wednesday showed.
• Reuters with additional editing by Jim Pollard