Hon Kong: Asian stocks clung to early gains on Monday as the US job market showed further signs of recovery, highlighting a brighter outlook for its economy, while the dollar slipped against a basket of other major currencies.
Markets in Korea and Japan , which have fared better than its regional peers in the recent selling spree, led gains, with the former trading just below a record high.
Japan has benefited from a shift into developed markets this year and generally strong corporate earnings, while South Korea is seeing stronger inflows as investors rotate out of last year’s hot performing emerging markets in Southeast Asia.
The broader MSCI index of Asian stocks outside Japan was by nearly half a percent, as investors returned to pick up bargains after stocks dropped to a one-month low last Monday.
So far this year, Asian stocks have underperformed the MSCI world index by nearly three percentage points due to a variety of factors such as frothy valuations in some markets in South and Southeast Asia and strong data out of the US.
Investors pulled out $7 billion from emerging markets equity funds in the week of 4 February, its biggest outflow in three years, data from fund tracker EPFR Global showed, putting a sizeable dent to record inflows seen in this category in 2010.
But indications that Asian authorities are demonstrating greater urgency to tackle inflation, with Indonesia being the latest country to surprise markets by increasing interest rates by a quarter point last week, have made investors cautiously optimistic about the near term outlook. .
“Policymakers are likely to adopt more administrative measures and front-load rate hikes as inflationary expectations continue to rise,” Barclays Capital strategists said in a note.
Most Asian markets which were closed for the Lunar New Year holiday late last week reopened on Monday with the exception of China, where trading will not resume until Wednesday.
Boosted by Friday’s data which showed a sharp drop in the US jobless rate, the dollar gained briefly against a basket of currencies with markets growing wary of a reversal in its recent bearish trend after it bounced off multi-month lows against the euro last week.
Despite concerns that job growth was far less than expected, markets viewed the data positively.
The dollar index , which tracks the greenback against a basket of major currencies, dipped 0.2% by midday, nearing a three-month low of 76.881 tested last Wednesday.
The euro was up 0.2% at $1.3617 with traders citing talk of euro-buying by Asian names. .
Reports of euro zone infighting over a French and German push for a comprehensive package of reforms to address the region’s debt crisis also kept a lid on the euro.
Indeed, Credit Agricole said many of its Asian clients were sceptical about any signs of improved sentiment towards the eurozone’s debt troubles.
Japanese government bond yields rose, reflecting a rise in US Treasury yields with the 10-year yield hitting a nine-month peak above 1.295% but losses were limited due to some mild bargain buying. .
US crude futures recovered slightly to around $89 a barrel after falling nearly 2% on Friday though the focus remained firmly on Egypt’s political crisis. . Brent crude stayed above the $100 level.
The Egyptian government opened talks with the opposition at the weekend to resolve the country’s deepest crisis in 30 years, but it was far from certain the situation had been defused.