Ambiguity in Asian Markets Looms Larger

On Tuesday, mixed trading across a range of Asian stocks and indices materialized. Factors ranging from recession fears to China’s GDP release and the Bank of Japan’s anticipated monetary policy decision may have led to volatility in Chinese and Japanese stocks. Here’s what you need to know about today’s Asian stock markets and what has been driving them:

China’s Economic Uncertainty Persists

With more than two weeks into the new year, many traders and investors may have been apprehensive about how to approach the Asian market since factors such as inflation and rising recession fears remain in the dark. According to the World Economic Forum, about 66% of those who participated in the survey expect a recession in 2023. In addition, it was only a month ago that China ended its zero-COVID policy and lifted its restrictions. As such, naturally, doubt intensified further.

One prominent example of these apprehensions is Tuesday's Asian market trajectory. Accordingly, today, the China A50 (CN) index slid slightly by 0.47% as of the time of the writing. Similarly, other China-related stock indices like the Hang Seng (Hong Kong 50) dipped by 1.18% as of the time of the writing. This descent may have been attributed to the fact that China’s latest GDP on Monday, January 16th, showed that the world’s second-largest economy’s growth has dived deeper in 2022 compared to 2021. 

Nonetheless, it is worth noting that despite this gloomy revelation, China’s GDP report also revealed a stronger pace in the last three months of 2022, as well as positive retail sales in December 2022. This may have signaled that China’s economy might be on a much-needed road to recovery. However, it seems that the uncertainty emerging from China’s worsening and increasing COVID-19 cases may have overshadowed the aforementioned economic readings.

Some Goldman Sachs’ (GS) analysts even posit that China’s fast reopening of its borders may have damaged the Chinese economy. Moreover, in recent days, China was under World Health Organization’s (WHO) radar as the latter criticized the country for under-reporting the heavy COVID death tolls. This may have also added to the market uncertainty and fears that may have traded some Chinese markets down. Furthermore, China also revealed last Saturday that since it has abandoned its Zero-COVID policy, over 60,000 people have died from COVID-19 cases. Therefore, it may have not been surprising to learn that market sentiment in Hong Kong and China was mostly negative today. (Source:CNBC)

Is It Getting Better for Japan’s Stock Market?

On the other side of the Asian landmass, the Japanese market fared better on Tuesday. While in China and Hong Kong, many stocks went down, in Japan, most stocks were in the black. While these gains may have been a rebound for the previous losses, the exact reasons for them are still opaque. Nonetheless, some posit that a rise in sectors such as petroleum, textile, and chemicals may have driven such growth. On the other hand, others attribute this upward trajectory to overnight positive market trends in the European market sector whereby tech stocks were on a sharp incline. 

Accordingly, major Japanese index, the Nikkei 225 (Japan 225), rose by 1.23% while Japanese automotive companies, Mazda (7261.TY) and Nissan (7201.TY) climbed by 3.7% and about 2.8% as of the time of the writing. 

Moreover, on the Forex front, the Japanese yen rose and approached a 7-month record high as many traders and market watchers remain apprehensive about the Japanese markets ahead of the upcoming Bank of Japan monetary policy decision on Wednesday. 

Thus, with Japan’s 2-day monetary policy meeting in full swing, investors and traders may be waiting with bated breath for Wednesday’s monetary decision. As it stands, many seem to believe that Japan’s central bank will likely adopt a drastic policy and eliminate its yield curve control policies. This may be shocking to some especially following the BoJ’s yield curve control widening in December.

According to Bank of America Global Research’s experts, Japan may withhold a dovish benchmark rate on Wednesday, however, the yield curve control policy may be abandoned. Due to this unpredictability, the fate of the Japanese yen and the Japanese market as a whole, is yet to be determined as some posit that it might benefit and others say it might suffer. However, as it stands, the yen is currently trading stronger against the US dollar. 

What’s Next?

With COVID cases surging on the Chinese mainland, the BoJ’s policy still vaguer than ever, and factors such as inflation and recession fears still taking a toll on the general market, the future of the Asian economy, in particular, and the global economy, in general, remains uncertain. Traders will have to be patient to see how these factors play out in the end.