Hong Kong: Asian stocks pushed back towards a six-month high on Thursday as technology shares resumed their rally, while Japan’s surprisingly big stimulus spending and signs of stabilising economic activity drove up government bond yields.
Japan’s Nikkei share average jumped 3.7% after the government announced a bigger-than-expected stimulus package of $154 billion (around Rs7.7 trillion), or about 3% of gross domestic product (GDP). The news hurt Japanese government bonds on worries about big supply to pay for the spending.
The Japanese spending package will target eco-friendly electronics, giving a boost to shares of companies such as Sony Corp. and Panasonic Corp.
The package will add to spending of 12 trillion yen already planned under previously announced stimulus measures, taking Japan’s total stimulus spending to combat the global financial crisis to around 5.5% of GDP.
But the rally in shares, worries about bond supply and signs that some central banks may have finished cutting interest rates kept pushing up bond yields and swap rates across the region—complicating the efforts of central banks to keep credit cheap.
The Bank of Korea kept rates on hold at 2%, a record low. It said there was still room to cut rates but also that the economy was levelling off after its rapid decline. The upbeat comments sparked a 4.3% rally in the Kospi index to a six-month closing peak.
Some economic data around the region also provided hope for a recovery. Japanese core machinery orders posted a surprising increase of 1.4% in February from the previous month, while business surveys in China suggested the economy is steadying.
China remains the economic engine helping offset the collapse in exports across Asia thanks to its nearly $600 billion stimulus spending, which has spurred orders for technology goods across Asia.
“Recent data from China has been positive relative to expectations,” said Patrick Bennett, Asia foreign exchange and rates strategist at Societe Generale SA in Hong Kong. “The positive surprises in recent Australian, Korean, Taiwanese and Brazilian trade data have been underpinned by improving shipments to China.”
Shares in tech-heavy Taiwan—one of the best performing stock markets in the world this year—helped lead the rise in Asia as companies such as contract chip maker United Microelectronics Corp. jumped on signs of improving demand.
Regional indexes painted a positive picture with Taiwan soaring 4.1%, while Hong Kong’s Hang Seng gained 3%. Singapore climbed 2.5%, while China rose 1.4% and India gained 0.6%.
The MSCI index of Asia-Pacific stocks outside Japan rose about 3%, snapping a two-day fall and back near a six-month peak. Showing greater investor confidence, volumes rose on the hefty gains. The regional benchmark has now rebounded more than 30% from lows hit in early March.
Investors in many financial centres are now taking a break for Easter holidays. Markets in Australia, Hong Kong, India and Singapore are closed on Friday.
Bond markets around the world have suffered from the massive supply looming ahead, even as central banks such as the Federal Reserve have taken the extraordinary step of buying government bonds outright to keep long-term yields low.
Japanese government bonds (JGB) were spooked as the government said it would issue 10-11 trillion yen to pay for the new stimulus spending, about twice what analysts had expected. The 10-year JGB yield edged up 2 basis points to 1.475% and hit a five-month high of 1.480%, extending a rise despite the Bank of Japan having increased its monthly purchases of debt.