Stabilization of the Chinese Economy Uplifts Investors in Asia

Asian stock markets saw an increase in share prices this morning, as weaker-than-expected data on Chinese industrial activity alleviated fears of a tightening of monetary policy there, and the earnings of Japanese companies positively influenced investor sentiment.

On the Tokyo Stock Exchange, the Nikkei index strengthened by 0.3 percent to 9,578 points. On the Shanghai Stock Exchange, share prices rose by 0.8 percent, while leading indices in Australia, Hong Kong, South Korea, and Taiwan increased between 1 and 1.8 percent. As a result, around 7:00 AM, the MSCI Asia-Pacific index, excluding Japan, was up 1.5 percent, with technology and consumer goods companies seeing the largest gains. The Chinese Purchasing Managers’ Index fell to 51.2 points in July, down from 51.1 points in June. It is now at its lowest level in the last 17 months, but still above the 50-point mark, which separates the area of growth from contraction, according to data released by the China Federation of Logistics and Purchasing (CFLP) on Sunday.

"The July Purchasing Managers’ Index did not fall below 50 points, but indicates weakness across the sector, and therefore reflects our view that the Chinese economy will continue to slow down, but will not collapse," emphasizes Dong Tao, an economist at Credit Suisse. As this index has fallen for the third consecutive month, analysts estimate that there is no danger of overheating in the Chinese economy, and therefore no need for restrictions on credit activity in China.

Among other indicators, the data on South Korean exports growing by 29.6 percent year-on-year in July is encouraging, which is above analysts’ expectations, who had anticipated an average growth of 26.9 percent. On the Tokyo Stock Exchange, the announcement of financial reports from Sony, Honda, and Panasonic, which reported strong business results for the second quarter despite a decline in industrial production and consumer prices, also positively influenced investor sentiment. However, it seems that the Nikkei index currently lacks the strength for a stronger breakthrough above 9,800 points, the highest level recorded in mid-July, which it has unsuccessfully attempted to surpass several times.

In the currency markets, the dollar exchange rate slightly slid against the euro this morning, mainly due to investors’ fears that the U.S. economic recovery is losing momentum, as indicated by Friday’s data showing that U.S. GDP growth slowed from 3.7 to 2.4 percent in the second quarter. The euro price this morning is around 1.3072 dollars, after being recorded at 1.3060 dollars on Friday. After reaching its lowest level against the yen in the last 8 months at 85.95 yen on Friday, the dollar has slightly strengthened today, standing at 86.49 yen. However, analysts point out that there are no strong purchases at the current dollar and yen exchange rate, as there is increasing speculation that Japanese authorities may intervene to protect the competitiveness of their exporters. (H)