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Asia stocks hit 4-month high on China’s reopening | Financial Markets

Investors hope that once the COVID infection waves pass, life and spending can return to normal.

Asian shares have risen sharply on investor hopes for China’s emergence from the COVID-19 pandemic.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1 percent to touch a four-month high in morning trade. Japan’s Nikkei 225 bounced off a three-month low.

China has abruptly dropped ultra-strict curbs on travel and activity, unleashing the virus on the nation’s 1.4 billion people. Many funeral homes and hospitals say they are overwhelmed, but investors hope that once the infection waves pass, life and spending can return to normal and are looking beyond the most immediate difficulties.

“China reopening has a big impact … worldwide,” said Joanne Goh, an investment strategist at DBS Bank in Singapore, since it not only spurs tourism and consumption but can ease some of the supply-chain crunches seen during 2022.

“There will be hiccups on the way,” Goh said, during an outlook presentation to reporters. “We give it six months adjusting to the process. But we don’t think it’s reversible.”

China’s central bank also said overnight it will step up financing support to spur domestic consumption and key investment projects and support a stable real estate market.

E-commerce and consumer stocks were among the biggest gainers in Hong Kong, lifting the Hang Seng 2 percent to a six-month high while reopening hopes have driven China’s yuan to four-month highs and supported regional stocks and currencies.

The yuan rose about 0.2 percent to 6.8750 on Thursday.

China has partially eased an unofficial ban on Australian coal imports and the Australian dollar hit a three-week high overnight just below $0.69.

Oil sounded the loudest note of caution, falling sharply overnight on worries that the near-term outlook is precarious in China and that a global slowdown will hurt demand.

Asia’s optimism comes while minutes from the Federal Reserve’s December meeting, published on Wednesday, contained a caution against late-year rate cuts traders have priced in.

Fed committee members noted that “unwarranted easing in financial conditions” would complicate efforts to restore price stability, the minutes showed.

“Translating Fed speak, this is a warning to markets, that being too optimistic may ironically backfire,” said Vishnu Varathan, Mizuho Bank’s head of economics in Singapore.

“That is, insofar that premature rate cut bets drive looser financial conditions, the Fed may have to tighten even more to compensate.”

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