China returns to work with a stock market surge

Chinese stocks led Asian markets higher on Monday as investors bet on a steady recovery for the world’s No 2 economy, though caution about the fate of economic stimulus negotiations in the United States kept investors wary.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.8 percent to a two-and-a-half-year high, buoyed by a 2-percent gain in Chinese blue chips and a 1.5-percent rise by Hong Kong’s Hang Seng index. Japan’s Nikkei slipped 0.3 percent as investors fretted about corporate earnings there.

“If capital is moving on relative growth rates, then China is looking quite attractive,” said Chris Weston, head of research brokerage Pepperstone in Melbourne. Equities are cheap, yields advantageous and the outlook solid, he said.

“From a virus perspective as well, we’re seeing concerns in Europe, while China is considered a quasi-safe haven.”

China has returned from an eight-day mid-autumn festival with investors encouraged by a robust rebound in tourism and ebbing coronavirus cases.

After finding a small number of new cases, Qingdao city said on Monday it would conduct COVID-19 tests for its entire population of more than 9 million people over five days.

Elsewhere, in the US Midwest, infections are at record levels and the World Health Organization is urging fresh curbs for Europe.

Coronavirus aid plans in the US are also in disarray, with the Trump administration on Sunday calling on Congress to pass a stripped-down relief bill while talks on a more comprehensive proposal were again at an impasse.

Futures for the S&P 500 wobbled either side of flat in the Asia trading session, pointing to a relatively unchanged open on Wall Street, while European stock index futures edged higher.

“The economic fallout of COVID-19 has accelerated the relative decline of the US as the world’s economic engine,” said ANZ chief economist Richard Yetsenga. “It is also increasing the centrality of Asia – and particularly, of China.”

Chinese blue chips have gained nearly 17 percent this year, compared with an almost 8 percent gain by the S&P 500. Foreigners’ buying of Chinese government bonds hit its fastest pace in more than two years last month.

In commodity markets, oil prices were back under pressure after the resolution of an oil workers strike in Norway and the resumption of production after a storm in the Gulf of Mexico.

Brent crude futures slipped 0.9 percent to $42.48 a barrel and US crude futures were down about 0.8 percent at $40.26.

Yuan wobbles

In currency markets, a 0.4 percent drop in the Chinese yuan dragged the China-sensitive Australian dollar lower and underpinned small but broad gains for the dollar against other major currencies.

The People’s Bank of China has scrapped a requirement for commercial banks to hold a reserve of yuan forward contracts, removing a guard against depreciation.

Traders said that suggested authorities were uncomfortable with recent gains in the currency, which make exports less competitive.

The yuan is up more than 7 percent since late May and had shot higher on Friday as investors wagered that a victory by Joe Biden, US President Donald Trump’s Democratic challenger in the November 3 election, would lead to smoother relations between the top two economies. It traded at 6.7211 per dollar in onshore trade.

But some investors say they see little difference between the two with regards to China relations.

“Trump and Biden have more in common than meets the eye,” said Kevin Lai, chief economist for Asia excluding Japan at Daiwa Capital Markets, in a research note sent to Al Jazeera.

“There has been a sea change in sentiment in the US among both Republicans and Democrats. Whoever wins the election, one thing is clear: the US has turned a corner in its relations with China and looks set to maintain a hard line on many aspects, including trade. They may differ in other areas, but when it comes to China, Donald Trump and Joe Biden are more or less on the same page,” Lai added.

The euro edged 0.1 percent lower to $1.1816 and the Japanese yen was broadly steady at 105.55 per dollar.

Gold held on to Friday’s steep gains at $1,927 per ounce as investors stuck with bets that US policymakers would eventually agree on economic stimulus measures.

The US bond market is closed on Monday for the Columbus Day holiday.