- China’s CSI 300 index hit its highest since 2008, up 8.48%
- And yet, the prolonged contraction in the manufacturing sector is dampening optimism
- Japan’s Nikkei 225 falls again, losing more than 4%, and the political side promises rate hikes
- Markets in China and Hong Kong rise largely on expectations of lower mortgage rates
- American indices like the Dow Jones rose 0.33% while the S&P 500 and Nasdaq showed declines
Stock markets in Asia, namely those of China and Japan, are forcing investors’ attention for both economic and political reasons.
In particular, stocks in mainland China are up 8.48% for the day, but things are not so clear cut and there are consistent declines in the manufacturing sector.
Meanwhile, markets in Japan are suffering again, showing a 4.8% decline and also a 4.9% year-over-year decline in manufacturing. All this against the backdrop of the political context, the Liberal Democratic Party elections, where Shigeru Ishiba was given a mandate to change monetary policy.
Chinese Stocks Rise and Mixed Economic Indicators
The CSI 300 index made investors happy on Monday, showing a gain of 8.48% to close at 4017.85, while Hong Kong’s Hang Seng Index rose 3.49%, led by consumer stocks. The CSI 300 index cannot be overlooked as it posted record highs since September 2008 and ended a nine-day winning streak. Healthcare and technology stocks, among others, were the best performers.
However this is not all the data that investors are paying attention to, and one of the indicators that makes the whole picture ambiguous is the PMI. It came in at 49.8 for September, which is higher than the expected 49.5, but if we take a longer-term view of 14 months, we see that 49.8 is down from 50.4.
Meanwhile, Caixin shared data from a private survey that showed a drop to 49.3, one of the strongest declines in manufacturing, and highlighted that short-term market growth may not correlate with longer-term and overall economic trends.
This is important because it is in the context of such longer-term and more fundamental Central Bank of China (PBoC) decisions. In particular, it plans to stimulate the economy by cutting mortgage rates on first and second properties by 50 basis points, while commercial banks must cut them by at least 30 basis points by the end of October.
Japan’s Fall, and Political Factors Potentially Worsening the Situation
At this time, the Nikkei index experienced a 4.8% drop with a close of 37,919.55, where the real estate sector and especially the Isetan Mitsukoshi holding company with a 10.64% drop in their shares.
Analysts believe that the main reason for the fall in production in August by 4.9%, which was much worse than the expected 0.9% and got to 3.3%.
However, things are not clear-cut here either, and one cannot say that the Japanese economy is purely collapsing. One of the very important indicators is consumer demand, and for example, retail trade showed growing figures, namely by 2.8% in the same August.
As economics is not inseparable from politics, it is also worth considering the recent Liberal Democratic Party elections, where Shigeru Ishiba got a mandate to change monetary policy.
His strict measures implying normalization of monetary policy and possible rate hikes have made investors wary about the favorability of business growth and thus their investments in it.
It should also be noted that it affected the Japanese Yen, which weakened by 0.13% against the dollar, trading at 142.38.
The Rest of the Markets
All this made the rest of the markets react very mixed too, giving mixed readings.
Australia’s S&P/ASX 200 rose 0.7% to close at 8,269.8 while South Korea’s KOSPI fell 2.13% to 2,593.27 and the low-capitalization KOSDAQ fell 1.37% to close at 763.88.
Of course, nothing can escape the U.S. markets, which posted mixed numbers. The Dow Jones Industrial Average rose to a new high on Friday adding 0.33% to close at 42,313.00, following data on developments in containing inflation. But the S&P 500 fell 0.13%, as the Nasdaq Composite lost 0.39%.
Conclusion
We are seeing very live market dynamics where all the markets affect each other in one way or another. That said, within each market, we see how the upward movement of stocks may not reflect the long-term dynamics.
When we talk about the Chinese market rising, even if it’s a record high, we have to be clear-headed about it, taking into account the parallel performance over the long haul.
It is the same with the Japanese market, which is showing a decline, but one of the key indicators like retail consumption is growing. Of course, again with the example of Japan, we have to remind ourselves that it is impossible to ignore the political context where the market is based.
And even within the same market as the US we can see very different indicators like the Dow Jones Industrial Average, which is not correlated with the S&P 500 and the Nasdaq.
