Japan, China Shares Rise as Investors Bet on Stimulus Measures

The major Asia-Pacific stock indexes finished mixed but mostly higher on Friday – once again led by a sharp rise in Japan while Australia suffered another beat down. The theme remained the same. Investors are worried about the economic impact of the coronavirus pandemic on the global economy and investor sentiment.

On Friday, Japan’s Nikkei 225 Index settled at 19389.43, up 724.83 or +3.88%. Hong Kong’s Hang Seng Index finished at 23479.89, up 127.55 or +0.55% and South Korea’s KOSPI Index closed at 1717.73, up 31.49 or +1.87%.

China’s Shanghai Index settled at 2772.20, up 7.29 or +0.26% and Australia’s S&P/ASX 200 index finished at 4842.40, down 270.90 or -5.30%.

Nikkei Rallies on Stimulus Hopes, Logs Biggest Weekly Gain Ever

Japan’s share benchmark Nikkei rebounded on Friday and logged its biggest weekly gain on record as policymakers around the world launched a raft of stimulus efforts to mitigate the economic damage from the coronavirus, Reuters reported.

The Nikkei average rose 3.88% to 19,389.43 points, recouping most of the 4.5% losses suffered on Thursday. The index jumped more than 200 points in the final minute of trade on passive investors’ buying to reinvest expected dividend payments.

For the week, the index surged 17.1%, but it is still down 18% for the year after the explosive spread of the virus triggered a global economic crisis and a meltdown in financial markets.

The Nikkei volatility index, a measure of investors’ volatility expectations based on option pricing and considered to be a fear gauge, fell 3.2% to 52.47, moving further away from a nine-year peak of 60.86 hit on March 16, Reuters said.

Prime Minister Shinzo Abe is expected to order his cabinet to compile an economic package with spending worth $135 billion or more, government officials and lawmakers say.

All Eyes on China

“Japan and the rest of Asia look likely to get their economies back on their feet way before the U.S. and Europe,” said Nicholas Smith, Japan strategist at CLSA Securities. “If you think Japan and the rest of Asia will recover first what do you buy? Japanese stocks that are most exposed to China.”

Japan may be betting on a recovery in China, but there is still nothing to suggest the Chinese economy has turned a major corner. However, the latest dismal economic readings reinforced hopes Beijing would roll out more monetary and fiscal measures to bolster its economy.

Profits at China’s industrial firms slumped in the first two months of the year to their lowest in at least a decade, with the mining, manufacturing and power sectors all seeing sharp falls as the virus outbreak battered China’s economy, according to Reuters.

“The profit outlook will remain bleak before new stimulus to aggregate demand,” said Xing Zhaopeng, markets economist at ANZ in Shanghai. “The worldwide lockdowns will continue to weigh on the economy.”

Nonetheless, sentiment in China is being lifted by the news that leaders of the Group of 20 major economies pledged on Thursday to inject over $5 trillion into the global economy to limit job and income losses from the coronavirus and “do whatever it takes to overcome the pandemic.”

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.