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James Hyerczyk
Asia Pacific Shares

The major Asia-Pacific stock indexes finished higher last week, tracking the performance of the Wall Street’s Big Three – S&P 500, Dow Jones Industrial Average and NASDAQ Composite. The primary catalyst behind the strength in the region were signs of progress in U.S. stimulus talks. Strong performances by a few local issues also contributed to the rally.

Weekly Cash Market Performance

In Japan, the Nikkei 225 Index settled at 28779.19, up 1115.80 or +4.03%. South Korea’s KOSPI Index finished at 3120.63, up 144.42 or +4.85% and Hong Kong’s Hang Seng Index closed at 29288.68, up 1004.97 or +3.55%.

In China, the benchmark Shanghai Index settled at 3496.33, up 13.26 or +0.38% and Australia’s S&P/ASX 200 Index finished at 6840.50, up 233.10 or +3.53%.

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Common Theme Was US Stimulus Hopes

Asia-Pacific shares were supported across the board as Democrats pushed ahead with U.S. President Joe Biden’s proposed $1.9 trillion stimulus plan without bipartisan support.

Biden’s fellow Democrats in Congress approved a budget outline that will allow them to muscle the stimulus through in the coming weeks without Republican support.

Strengthening the case for a sizable relief package from the government to aid the recovery from the COVID-19 pandemic was the news that U.S. employment growth rebounded moderately in January and job losses in the prior month were deeper than initially thought.

Japanese Shares Boosted by Upbeat Earnings, US Stimulus Hopes

Japanese shares ended more than 4% higher last week, following the strength on Wall Street, driven by upbeat earnings from domestic firms and expectations of a large U.S. stimulus package.

On the earnings front, Japanese automakers jumped, with Mazda Motor surging 18.52% after cutting its loss forecast, making it the biggest gainer in the Nikkei index. Mitsubishi Motor jumped 8.13% and Nissan Motor gained 7.51%.

Hong Kong Shares Post Best Weekly Performance in Three Months

Hong Kong stocks posted their best weekly performance in three months, following persisting buying activity from mainland investors. The Hang Seng Index was mostly supported by consumer and industrial firms, as mainland investors continued to pour money into the Asian financial hub.

Mainland investors are buying stocks via the Stock Connect linking mainland and the Asian financial hub, extending the more than month-long buying spree. More mainland funds will be attracted to Hong Kong stocks whose valuations remain lower than those of A-share market, and U.S. and European markets.

Economic Recovery Hopes Underpin China Shares, Tensions with US Limit Gains

Liquidity issues were at the forefront last week, capping gains in China. China’s short-term money rates eased to two-week lows early last week, as signs of liquidity tension in the interbank money markets started to fade. But persistent tight liquidity conditions recently fueled speculation that the People’s Bank of China (PBOC) may be tightening policy and led to a sharp correction the previous week.

Traders and analysts said China’s continued economic recovery helped support equities, however some have started to worry about lofty valuations and turned their eyes to Hong Kong market via the Stock Connect.

“Market volatility could substantially increase, as valuations of the whole A-share market stand at historically high levels,” Qin Bo, an analyst with Everbright Securities, said in a note.

“If the fast rise in asset prices, in particular property prices in the country’s tier one cities, is not curbed effectively, Beijing’s marginal policy tightening could exceed market expectations,” Qin said.

For a look at all of today’s economic events, check out our economic calendar.
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