Asia’s two biggest stock markets diverged yesterday, with speculation of additional government spending buoying Japan’s Topix index while Chinese equities plunged.
The Shanghai Composite Index sank 6.4% for its steepest loss in a month as the overnight money rate, a gauge of liquidity in the financial system, climbed the most since February 6. The Topix closed 1.8% higher, with construction shares leading gains after a report lawmakers are considering expanding a spending package ahead of the summer elections.
“Globally, policymakers’ mindset is moving from monetary to fiscal, so Japan’s move to create an extra budget is commendable,” said Nobuhiko Kuramochi, head of investment information at Mizuho Securities Co.
The MSCI Asia Pacific Index rose 0.1% to 119.72 as of 5:24 pm in Tokyo, with share gauges in South Korea, Taiwan and Australia also finishing higher. Volatility over the past 30 days on the regional benchmark index remains near the highest level in four years amid tumbling oil prices and concern over the slowdown in China’s economy.
Japan is considering an extra budget worth about ¥5tn ($45bn), TV Asahi reported, citing several unidentified ruling party officials. Sharp Corp plunged 14% after striking a deal for Foxconn Technology Group to take control of the Japanese electronics firm.
South Korea’s Kospi index advanced 0.3% and Australia’s S&P/ASX 200 Index rose 0.1%. Taiwan’s Taiex index gained 1%. New Zealand’s S&P/NZX 50 Index slid 0.1%. Hong Kong’s Hang Seng Index fell 1.6% and the Hang Seng China Enterprises Index retreated 2.4%.
The Shanghai Composite’s slump extended its decline this year to 23%. Data showing a record surge in bank lending and signs of a stabilising yuan had helped fuel a rebound since trading resumed after the lunar new year holiday, with the equity gauge gaining 10% from its January low.
The renewed plunge underscores the challenge for China’s policymakers as they seek to project an image of stability in the nation’s financial markets as the economy slows. Finance chiefs and central bankers from the Group of 20 will meet in Shanghai today, while the annual meeting of the legislature begins in Beijing next week.
US Treasury Secretary Jacob J Lew downplayed expectations for “crisis response” at the G-20 talks in a Bloomberg TV interview, saying the world was currently in a “non-crisis environment.” Shane Oliver, at AMP Capital Investors, agreed.
“It would be nice to see some collective statement from the major central banks that they’re aware of the problems and that they can’t operate in isolation in this environment,” said Oliver, head of investment strategy in Sydney at AMP Capital, which oversees about $120bn. “I don’t hold out a lot of hope. We’re not in enough of a crisis yet to see a crisis response.”