Asian shares climbed to their highest in more than 18 months on Thursday, as investors grew more confident about the world’s second-largest economy, while the dollar slightly firmed in the wake of growing concerns over political instability in Europe.
MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.4 per cent to their highest since July2015 with Hong Kong, Taiwan and China among the region's best performing markets.
“In China we have an overweight view on equities as we see improved corporate earnings outlook with the Chinese PPI (producer price index) turning around from deflation trend,’’ said Fan Cheuk Wan, head of investment strategy for Asia at HSBCPrivate Bank, with an overweight recommendation on China, Indiaand Indonesia.
A rally in commodity prices in recent weeks led by copper and iron ore along with gentle policy tightening by Beijing via money market rates, had led to a more optimistic view of Chines ecorporate earnings, analysts said.
Earnings growth for MSCI China is expected at nearly 15 per cent over the next 12 months, slightly ahead of 13 per cent projected for companies in MSCI Asia outside Japan, according to Thomson Reuters data.
Pictet Asset Management has cut its exposure to US markets due to expensive valuations, and has turned bullish on emerging markets in Asia, citing strong correlations with commodityprices.
In other Asian markets, New Zealand stocks rose after the central bank signalled that a further cut in interest rates was no longer likely, but also that any tightening in policy might be two years or more away.
Commodity rally
In commodities, copper rose after the world’s top two mines said strikes and permit delays would force them to cut output. Helping sentiment was a recent pick-up in China’s producer price index to its highest levels since September 2011. Copper prices are up 27 per cent since late October.
Oil prices stabilised on Thursday, boosted by an unexpected draw in US gasoline inventories. Brent crude futures was trading at $55.43 per barrel, up 0.5 per cent.
However, bubbling political concerns, including a strong showing by far-right candidate Marine Le Pen in France’s presidential race, have pushed up premiums demanded by investors to buy French debt over comparable bonds and pushed the yen and US Treasuries higher.
“The market is clearly pricing in a degree of uncertainty around the French elections, although that’s not to say that the market is pricing in some type of shock political outcome,’’ James Woods, global investment analyst at Rivkin Securities in Sydney, wrote in a note.
The S&P 500 ended slightly higher on Wednesday as investors digested mixed earnings reports with a decline in average short interest positions across US stocks also heping gains, according to data released by Markit.
Cautious stock markets translated into another day of gains for bonds with 10-year US benchmark bond yields declining for a third consecutive day to 2.34 per cent, thelowest level in three weeks.
The dollar bounced after the previous day’s drop, but falling yields are set to limit the greenback’s gains.
Against a broad trade-weighted basket of its rivals,the dollar was trading at 100.20 compared to a level of 99.30 last week. The Japanese yen also held its ground thanks to a broad rush to safety.