China optimism spreads, S. Korea GDP in focus

Jan 25 – The focus for Asian markets on Thursday will be on whether the improvement in investor sentiment toward China and Hong Kong continues, following the Chinese central bank’s latest move to inject liquidity and support asset prices.

The regional economic data calendar is light and will be dominated by the first estimate of South Korea’s fourth quarter gross domestic product growth, ahead of which the Korean won just chalked up its biggest rise against the dollar in a month.

The dollar is trading softer across the board, weighed down by lower US bond yields and a rebound in market expectations that the Fed could cut interest rates as early as March.

That alone should help whet investors’ risk appetite in Asia on Thursday, as should the rally in China and Hong Kong on Wednesday that was sparked by the People’s Bank of China’s decision to slash bank reserves by the most in two years.

The move, which will inject about USD 140 billion of cash into the banking system, and PBOC Governor Pan Gongsheng’s pledge to unveil policies on improving commercial property loans extended this week’s bounce in risk assets and the yuan.

The Shanghai Composite’s 1.8% rise was its biggest since July, the CSI 300 index of blue chip shares is now poised to snap a three-week losing streak, and the Hang Seng jumped 3.6%.

Beijing’s actions on Wednesday came hot on the heels of a Bloomberg News report that authorities are weighing up a 2-trillion yuan (USD 278 billion) funding package of measures to support the country’s creaking markets.

And with strong US earnings reports, especially from Netflix, and rising chipmaker stocks lifting the S&P 500 to yet another record high, the mood at the open in Asia on Thursday should be bullish.

Official figures from Seoul, meanwhile, are expected to show that South Korean growth slowed in the final three months of 2023 to a seasonally adjusted 0.5% quarter-on-quarter pace, according to a Reuters poll of economists, down a touch from 0.6% in the previous quarter.

Year-on-year growth, however, is expected to have accelerated to 2.1% in the fourth quarter from 1.4% in the preceding quarter.

The benchmark KOSPI index has had a very weak start to 2024, and is down 7% so far this year. For comparison, the MSCI Asia ex-Japan index is down 4.5% slide, China’s CSI 300 index was outperforming that even before this week’s stimulus, and Japan’s Nikkei is up 8%.

Here are key developments that could provide more direction to markets on Thursday:

– South Korea GDP (Q4 advance estimate)

– Hong Kong trade (December)

– Bank of Korea manufacturing survey (February)

(By Jamie McGeever)