Asian Shares Mixed; Investors Focused on Central Bank Activity

The major Asia-Pacific stock indexes finished mixed but mostly higher on Wednesday as investors seemed to shrug-off the steep decline on Wall Street on Tuesday despite the U.S. Federal Reserve announcing an emergency rate cut.

Economic news and central bank activity dominated the trade in the region. Meanwhile, officials continue to monitor the progress of the coronavirus and its potential impact on the global economy.

On Wednesday, Japan’s Nikkei 225 Index settled at 21100.06, up 17.33 or +0.08%. Hong Kong’s Hang Seng Index finished at 26305.65, up 20.83 or +0.08% and South Korea’s KOSPI Index closed at 2059.33, up 45.18 or +2.24%.

China’s Shanghai Index settled at 3011.67, up 18.77 or +0.63% and Australia’s S&P/ASX 200 Index finished at 6325.40, down 110.30 or -1.71%.

Central Bank Activity

The Hong Kong Monetary Authority (HKMA) lowered its base rate charged through the overnight discount window by 50 basis points to 1.5% on Wednesday, hours after the U.S. Federal Reserve delivered a rate cut of the same margin.

“There is still a lot of uncertainty in the evolution of the epidemic, there will still be very large volatility in financial markets,” the HKMA said in a statement on Wednesday morning.

“Investors must manage their risk properly,” it said.

In Japan, Bank of Japan (BOJ) Governor Haruhiko Kuroda is expected to appear in parliament later on Wednesday, according to a Reuters report which cited two sources.

The BOJ could ramp up stimulus this month as part of efforts by central banks to prevent the coronavirus outbreak from triggering a global recession. But it will be a close call as the BOJ has less ammunition than the Fed, with its short-term interest rate target below zero and its balance sheet bloated from years of heavy asset buying.

On Tuesday, in a surprise move, the U.S. Federal Reserve cut its benchmark rate by half a percentage point two weeks ahead of its scheduled meeting due to the “evolving risks to economic activity” posed by the coronavirus. It was the central bank’s first such emergency action coming in between scheduled meetings since the 2008 financial crisis.

Economic News

A private survey released Wednesday showed China’s services sector seeing its worst month on record in February, according to Reuters. The Caixin/Markit services Purchasing Managers’ Index (PMI) plunged to 26.5 from 51.8 in January.

HIS Markit’s Hong Kong Purchasing Manager’s Index, hit a record low of 33.1 in February.

Australia’s GDP for the fourth quarter rose above expectations, growing a seasonally adjusted 0.5% during the fourth quarter, according to data from the Australian Bureau of Statistics. That was higher than the forecast of a 0.3% growth in a Reuters poll.