China reopens with a bang, but fails to lift Asian stocks

By Rae Wee

SINGAPORE (Reuters) – Shares in mainland China returned from a prolonged hiatus with a blistering start on Tuesday, pushing to multi-year highs as investor exuberance over Beijing’s aggressive stimulus measures showed no signs of abating.

However, the optimism did not spread to other Asian stock markets, particularly Hong Kong, which reversed some of the rally it enjoyed while China was on a week-long holiday.

China’s blue-chip CSI300 rose 10 percent in early trade to its highest level since July 2022, while the Shanghai Composite rose about the same amount to its highest since December 2021.

But Hong Kong’s Hang Seng index fell 3.9 percent, with the Hang Seng Mainland property index down more than 7 percent.

That sent MSCI’s broadest index of Asia-Pacific shares outside Japan down more than 1 percent.

“I think today’s move basically just explains that in the Chinese onshore market, it’s just rising to a level that investors are comfortable with. And in Hong Kong, there may be a little bit of profit-taking or profit-taking,” he said Gary. Ng, senior economist at Natixis.

“Because nobody’s really sure what’s going on under the stimulus … there could be a little bit of uncertainty about whether it’s above or below market expectations.”

Investors are watching a news conference by China’s National Development and Reform Commission, the country’s national economic and social planning agency, for more details on the stimulus pledges that also sparked a rally in Chinese stocks ahead of the holidays.

Elsewhere, Tokyo’s Nikkei fell more than 1 percent.

The S&P 500 and Nasdaq futures were flat.

Fears of a wider conflict in the Middle East dented the upbeat sentiment after Hezbollah fired rockets into Israel’s third-largest city, Haifa, on Monday and Israel appeared poised to expand its offensive into Lebanon, a year after a devastating attack by Hamas on Israel, which triggered the Gaza War.

Fears that such a conflict would disrupt oil supplies sent Brent crude futures above $80 a barrel on Monday for the first time in more than a month, although they pared some gains on Tuesday in Asia.

Last month was 0.58 percent lower at $80.45 a barrel, while U.S. crude futures fell 0.53 percent to $76.73 a barrel.

Analysts at ANZ said concerns that Israel could target Iran’s oil infrastructure fueled the rally and that comments from US President Joe Biden did little to ease fears.

“We still believe that a direct attack on Iran’s oil facilities is the least likely of Israel’s retaliatory options.”

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FED BETS

In the broader market, investors were reassessing the outlook for the path of the Fed’s easing cycle after Friday’s successful US jobs report.

Any chance of another 50 basis point rate cut next month has been erased, and traders are pricing in a 12% chance of the Fed keeping rates on hold. Only 50 bps for discounts will be priced through December.

Expectations of a less aggressive Fed path kept the benchmark 10-year US Treasury yield above 4% in Asian trade. (US/)

The two-year U.S. Treasury yield neared its highest level in more than a month and last stood at 3.9556%.

“While confidence of another 50 basis point cut is justifiably dampened … the Fed’s rate cut cycle is far from derailed,” said Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho Bank.

“Of course, the successful jobs report is a justifiable reason to reevaluate overzealous “pivot bets” on wild discounts.

However, the US dollar failed to get a further hike on the Fed’s revised expectations, having already had a strong run last week, partly due to haven gains on Middle East news.

The dollar was on the back foot in early Asian trade, down 0.35 percent against the Japanese yen at 147.68, while sterling rose 0.07 percent to $1.3094.

Against a basket of currencies, the greenback fell 0.1 percent to 102.38, although it touched a seven-week high on Friday.

The Chinese yuan rebounded, slipping against the dollar following the US dollar’s strength report.

Elsewhere, spot gold was little changed at $2,645 an ounce. (EMPTY/)

(Reporting by Rae Wee: Editing by Shri Navaratnam and Neil Fullick)