Asia share markets rise, China deflation risks persist

by Jonathan Adams
Shares in China

Japan’s Nikkei soared 1.5%, while MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.2%, with gains in Australia and South Korea being eroded by a 0.2% drop in Hong Kong’s Hang Seng index

Most Asian markets tracked Wall Street higher on Thursday, but Chinese stocks were battling to sustain a rally after data raised concerns about deflationary pressures in China and indicated the economic downturn may have further to run.

Japan’s Nikkei soared 1.5%, while MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.2%, with gains in Australia and South Korea being eroded by a 0.2% drop in Hong Kong’s Hang Seng index.

Shares of Alibaba dropped 5.2% as its Q3 revenues missed estimates.

China’s blue-chips were 0.4% higher in volatile trade, after jumping for three consecutive sessions to move away from five-year lows as Beijing rolled out a string of measures to stabilise the market rout. Shanghai Composite index added 1%.

Data on Thursday showed China’s consumer prices dropped 0.8% in January from a year ago, the biggest decline since 2009, and missing forecasts for a drop of 0.5%. Producer prices also dropped again, a negative for sentiment.

On a monthly basis, CPI increased 0.3%.

China needs to take actions quickly and aggressively to avoid the risk of deflationary expectation to be entrenched among consumers, according to Pinpoint Asset Management President Zhiwei Zhang. Monetary policy has turned more supportive but the move in the fiscal policy is slow.

Beijing’s latest effort to stabilise markets before the week-long Lunar New Year holiday is the ousting of China’s securities watchdog head on Wednesday, although that only drew a muted cheer from investors.

I think the officials are attempting to steer the ship before they head into the Lunar New Year. But till the property sector really rights itself, prices start going up, consumers have that wealth effect, that is really what it takes to see the market start to turn around a lot more, according to Kerry Craig, global market strategist at J.P. Morgan Asset Management.

Craig added: And I think a lot of offshore investors have started to look at other markets outside of China or at least diversify as well.

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