Asian markets tick up amid rate-cut hopes; Nikkei’s rally rolls on

Asian equities mostly climbed on Monday despite a tepid start, as investors persisted in their expectation that the U.S. Federal Reserve might implement interest rate cuts soon. Momentum in Japanese stocks propelled the market to heights not seen in 34 years.

However, the broader market’s advance was tempered by the anticipation of significant economic reports slated for release this week, such as China’s GDP figures and Japanese inflation data. Additionally, the markets were cautious due to potential responses from Beijing to the recent Taiwanese presidential election results.

The Japanese Nikkei 225 index outshone regional counterparts for the fourth consecutive session, surging by 1.1% and reaching a new 34-year pinnacle. Investors were drawn to Japanese equities amidst speculation that the Bank of Japan would maintain its dovish monetary policy.

Expectations are set for the upcoming Japanese CPI data to reveal a continuous downtrend in inflation, presumably influencing a lenient stance from the BOJ in their forthcoming meeting later in the month.
Following the victory of Democratic Progressive Party candidate William Lai in Taiwan’s presidential election, the Taiwan Weighted index experienced a 0.5% uptick, suggesting a persistence of the existing resistance stance against unification with China.

Lai and the DPP have consistently emphasized Taiwan’s sovereignty, a stance that has historically been a point of tension with Beijing. Post-election, China reiterated its unification agenda, with investors closely monitoring for any further actions leading up to Lai’s inauguration in May.

In China, stock market gains were restrained due to investors’ disappointment over the central bank’s decision to maintain lending rates, coupled with the anticipation of fourth-quarter GDP data releases.
The Shanghai Shenzhen CSI 300 and Shanghai Composite indices saw modest increases of 0.2% and 0.4%, respectively, while the Hong Kong Hang Seng index inched up by 0.1%, with a drop in key technology shares capping its growth. Baidu experienced a sharp downturn following reports of links between its AI project and the Chinese military, potentially drawing U.S. sanctions.

With the People’s Bank of China (PBOC) opting to preserve its medium-term lending rates, signaling no imminent changes to its prime loan rates and reflecting the PBOC’s balancing act between economic stimulus and currency stability, Chinese equity markets were left wanting.

Investors drew some comfort from the central bank’s cash injection, signifying Beijing’s constrained capacity to ease monetary policy further to support growth, which may not bode well for the delicate recovery of the post-COVID economy.

This week’s spotlight is on China’s Q4 GDP data expected on Wednesday. Forecasts indicate that growth may have exceeded the government’s 5% goal for 2023, albeit this is projected to stem from a comparably low base year.

In 2023, Chinese markets lagged compared to other Asian markets, with losses ranging from 10% to 20%, as hopes for a swift economic rebound post-COVID did not come to fruition.