Investors Shake Off Downgrades Or Are They Too Numb To React

Asia markets surged this morning, after data showed the Chinese economy grew at a faster-than-expected pace in the fourth quarter of 2011. This was totally unexpected by the markets. Most were expecting data to come in at forecast or slightly below.

China’s Shanghai Composite and Hong Kong’s Hang Seng Index each gained 2.1%.

Australia’s S&P/ASX 200 index  added 1.7%, South Korea’s Kospi rose 1.4% and Japan’s Nikkei Stock Average traded up 1.1%.

Markets are rebounding after overreacting to the [S&P] European credit downgrades on Monday as the rest of the world seemed to ignore not only the 9 countries being downgraded but also the downgrade of the EFSF and the bonds needed to provide the liquidity to the EU.

Data out Tuesday showed the world’s second largest economy grew at a faster pace than expected during the last quarter of 2011. Other key China reports including retail sales and industrial output figures also beat estimates.

The data appeared to soothe some fears that Europe’s debt-related problems. would result in a sharp slowdown for the Chinese economy.

Given the euro-zone crisis has, thus far, been a slow-bleeding process  unlike the sudden collapse of the U.S. financial crisis China’s hard landing risks are not imminent. China has been building firewalls and ring fences to stay protected and have been increasing their business with other trading partners, outside of the EU.

It seems that the new Chinese Monetary Policies, their new Economic and Bank Policies have paid off big time. Recently the Chinese government began allow for more open trading of their currency and have set up direct payment systems with Japan. Improved relations have helped improve their economy.

French President Sarkozy ignored the recent downgrade of France’s triple-A credit standing, saying rating agencies don’t set the economic policy of France and instead urging a focus on boosting growth and competitiveness to bring Europe out of the crisis.

At a press conference following a Madrid meeting with Spanish Prime Minister Mariano Rajoy, Sarkozy initially refused to answer questions regarding last Friday’s downgrade of several euro-zone nations by Standard & Poor’s, in a brusque and at times, defensive manner.

Whereas Angela Merkel simply said “What’s wrong with a AA+ rating it is still good”

Sarkozy stressed the importance of reform implementation by euro-zone members. “If Spain defaulted, we would all be adversely impacted. If Italy fails, we would all be negatively impacted. The French economy is intertwined with the Spanish and Italian economies. You have to feel a sense of solidarity,” he said.

Eurozone stock markets rose on Monday, as the French government successfully sold Treasury bills and investors shrugged off last week’s news that Standard & Poor’s downgraded the credit ratings of nine euro-zone nations, including France, Italy and Spain.

The pan-European Stoxx 600 index gained 0.8% to end at 251.12 after spending most of the session swinging between small gains and losses.

The French CAC-40 index rose 0.9% to 3,225.The U.K.’s FTSE 100 index climbed 0.4% to 5,657.44.

In Germany, the DAX 30 index rose 1.3% to 6,220.01.

It is just amazing although the downgrades were expected and had factored in to the markets previously, just the reality of 9 EU nations being downgraded compounded by Monday’s downgrade of the EU Bonds necessary to raise the capital through a complicated leverage system to bailout the larger countries of the EU. At this writing the fund only has 250billion euros and needs in excess of 1 trillion. Greece alone needed 130billion euros, which is now expected to increase. Markets and Investors seem to be ignoring the situation along with the EU leaders and the ECB and the IMF.