Hong Kong: Asian stocks punched to a seven-month peak on Monday, fuelled by confidence the global economy is recovering faster than expected and on a further jump in Taiwanese shares on hopes for an influx of Chinese investment.
Taiwan’s benchmark TAIEX index soared 5.6%, taking gains to 12.8% in just two days as investors see a wide-reaching deal coming later in the year as spurring heavy Chinese investment in the island, especially in financial firms.
The surge in Taiwan added to the broad gains across Asia as evidence has mounted that global trade is starting to pick up, highlighted last week by brokerage CLSA’s gauge of Chinese manufacturing activity rebounding to a nine-month high in April.
Investors have largely brushed aside worries that the global H1N1 flu outbreak could turn into a serious pandemic.
“The flu fears seem to be fading as the danger of it spreading seems to be lower now. On the other hand, we have China’s PMI data, which seems to signal continued recovery for the economy, yet another reason to stay bullish,” said Castor Pang, strategist with Sun Hung Kai Financial in Hong Kong.
The Australian dollar, seen as the currency market’s bellwether for risk-taking, struck a seven-month peak while safe-haven government bonds retreated.
Data last week in Asia showed South Korean exports and industrial production both improving more quickly than expected, suggesting that regional exporters are needing to step up activity after having aggressively slashed inventories of goods.
The US Institute for Supply Management’s factory survey on Friday also showed a jump in the new orders index, an important leading indicator adding to the evidence of a recovery taking shape.
“The global manufacturing cycle appears to be gaining momentum,” said economists at Societe Generale in a note to clients.
Investors are also feeling more confident that the US financial system has already suffered the worst of its crisis and is getting healthier, just before the government releases the results of stress tests later this week.
“Bank earnings are coming out fine and investors increasingly believe the result of the US banking sector’s stress test will be tolerable,” said Kim Hak-kyun, an analyst at Korea Investment & Securities in Seoul.
The MSCI index of Asia-Pacific shares outside Japan was up 4.6%, its highest level since mid-October and taking its two-month rally to 45% from the low hit in early March. Financial and technology shares powered the rise.
Foreign investors have seized on the rally as an opportunity to allocate more funds to Asia. Fund tracker EPFR Global said that Asia ex-Japan equity funds were the main emerging markets money magnet during the week ending last Wednesday.
On Friday the US S&P 500 edged up 0.5%, and S&P futures were pointing to a further rise later in the day.
Trading was active even with Japanese financial markets closed on Monday for the first of three straight holidays, part of the country’s Golden Week break. Many other markets in the region reopened after labour day holidays.
The Australian dollar climbed 0.7% to $0.7353 and hit a seven-month high of $0.7390 as market players favoured the currency still offering a 3% yield in a world where US and Japanese short-term yields are pinned near zero.
The dollar edged up 0.3% against the yen to ¥99.44, but the euro was up 0.1% at $1.3320.
Government bonds lost more ground as investors feared missing out on the equity rally and shifted funds away from safe-haven holdings.