A majority of Asian stock markets witnessed an upswing on Wednesday, closely mirroring the positive sentiment seen on Wall Street during the previous session. The rally was particularly prominent in Chinese markets, buoyed by the government’s announcement of an extensive bond issuance program.
A drop in Treasury yields significantly bolstered local technology shares, further aided by upbeat earnings reported by Microsoft Corp (NASDAQ:MSFT) overnight. Japan’s benchmark Nikkei 225 index recorded an impressive jump of over 1%, with strong performances in the tech and industrial sectors, while the broader TOPIX index added 1%.
Despite this rebound in broader Asian markets, they were still in recovery mode after significant losses incurred throughout October. Risk sentiment remained fragile in light of the Israel-Hamas conflict’s outbreak, and concerns loomed over the impending Federal Reserve meeting next week, which may entail an increase in U.S. interest rates.
Chinese Markets Rebound on News of Bond Issuance
Hong Kong and Chinese markets emerged as the standout performers for the day, as the Shanghai Shenzhen CSI 300 and Shanghai Composite indices both gained 0.8%, while the Hang Seng soared by 2.5%.
These indices managed to bounce back from their lowest points of the year after Beijing unveiled plans to issue 1 trillion yuan (approximately $137 billion USD) in government bonds, primarily aimed at supporting the nation’s economy. A significant portion of this issuance will be directed towards infrastructure investments, particularly in the reconstruction of disaster-affected areas and reinforcing relief capabilities. Consequently, construction and utility stocks led the charge in the Chinese markets.
In addition to the bond issuance, Chinese markets also found strength from Central Huijin, a sovereign fund, confirming its purchases of local exchange-traded funds. Despite Wednesday’s optimism, Chinese stocks remained perilously close to their lowest levels in 2023, owing to concerns surrounding an economic slowdown and a tumultuous property market. Notably, Chinese markets have been among the weakest performers in the Asian region this year.
Elsewhere in Asia
In contrast, South Korea’s KOSPI index saw a slight decline of 0.2% as data indicated a worsening of local consumer confidence in October. Meanwhile, Australia’s ASX 200 remained relatively flat, as optimism stemming from China was offset by data showing that the Consumer Price Index (CPI) had grown more than expected in the third quarter. This data suggested a possible interest rate hike by the Reserve Bank of Australia in the coming week.
Futures for India’s Nifty 50 index pointed to a weaker start, as traders continued to lock in profits following an impressive run of gains earlier in the year. The Nifty had seen a nearly 2% drop in October after achieving record highs the previous month.
Market Focus on Federal Reserve
Market participants were keenly attuned to any further signals from the Federal Reserve regarding monetary policy as the interest rate decision loomed. Data released overnight indicated an improvement in U.S. business activity for October, potentially giving the Fed more room to maintain higher interest rates.
Federal Reserve Chair Jerome Powell was scheduled to speak at the Moynihan Lecture in Social Science and Public Policy in Washington, D.C., later in the day. Powell had reiterated the possibility of at least one more rate hike this year, signaling that rates would remain elevated for an extended period. It’s worth noting that higher interest rates typically pose challenges for most Asian markets, diminishing the appeal of risk-driven assets and affecting capital flows into the region.
