Emerging stocks rise as China stimulus underpins hope

Emerging stocks rise as China stimulus underpins hope

Shanghai Composite, Emerging market stocks, global slowdown trending points

  • Mainland Shanghai surged to a nine-month high on Wednesday, the 6thof March 2019, although failed to fathom a broadened rally across the globe
  • Emerging market stocks surged on Chinese stimulus hopes, after Chinese economy had shown an obvious sign of slowdown on Monday (March 4th), slashing growth forecast to a 30-year low
  • KOSPI failed to extend gains this week, as Trump-Kim Summit cut short
  • Turkey may risk, as central bank kept inflation rate target unaltered

China to inject new financial stimulus, emerging market stocks rise

Today’s gain over emerging market index including China was mostly buoyed by a promise of Chinese government to trim taxes further and injecting further monetary stimulus chiefly by long-term low-cost debts. However, yesterday’s (March 5th) upbeat comment from the Chinese Parliament’s annual meeting came forth, after Monday’s (March 4th) data had revealed a further slashing of Chinese growth forecast for 2019 between 6 to 6.5 percent, while last year had already posted a Chinese growth less than 6.6 percent, indicating a clear contraction on Chinese economy.

A majority of emerging market stocks rise on Wednesday (the 6thof March), as optimism of fresh financial stimulus into Chinese economy at the verge of an upcoming contract had been supporting the risk sentiments, while most of the emerging market stocks softened on an upbeat US data including a flamboyant US ISM data released today.

The MSCI’s emerging market stock index had extended their gains for the fourth straight day, as a strong show-off of Chinese shares had led the rally, while the Mainland Shanghai Composite index closed the day 1.6 percent higher, posting its highest daily closure since June, 2018. Concomitantly, the Chinese Blue-Chip index surged by 0.8 percent. However, while this report was being prepared, the iShares MSCI’s Emerging Market index was down slightly by 0.03 percent to 42.96, yet the index would highly likely to close the day higher.

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iShares MSCI’s emerging market index

iShares MSCI’s emerging market index

As the growth forecast had trimmed to 6-6.5 percent from 6.6 percent a year earlier, the China has been facing an imminent recession, amid declined domestic demand and a rancorous trade abrasion with the US.

In the face of a fresh set of stimuli in the Chinese economy, the Hang Seng rose 0.26 percent to 29,037.60 and the Sensex surged more than 0.50 percent to 36,636.10, while the Japan’s Nikkei was tottered by 0.60 percent to 21,596.81. Besides, the South Korean KOSPI posted a plunge of 0.17 percent to 2,175.60 at the day’s market closure after remained flatlined for most part of the day.

Hang Seng Future daily price chart

Hang Seng Future daily price chart


Although most of the emerging market currencies curbed gain on Wednesday (March 6th) amid a strong US data and a robust US dollar after release of an unexpectedly strong ISM data, the EURO gained so far 0.13 percent in the intra-day trading to 1.1321 after remained rangebound between 1.1290-1.1300 for most part of the day, while the Great Britain Pound posted a slight plunge of 0.10 percent to 1.3164 after mostly remained dithered. Never the less, the EURO and GBP would likely to end the day higher, as US trade deficit reached a two-year high and US crude oil inventories posted another decline, while US initial jobless claim would likely to rise amid faltered US construction spending to a multi-month low.

Bottom Line

Still the US dollar remains strong, although it botched to break its initial resistance level at 96.50 against a basket of six major currencies on an average, currently residing at 96.30, and in a near-term outlook the US dollar would likely to fall below 96 level despite strong US data, which would likely to be overshadowed by fresh monetary injection by the Central banks of China, UK and ECB.

As mentioned earlier, a firmer American Dollar had pressurizing the developing currencies, alongside Chinese Yuan, although failed to ease a recession risk looming over US economy. In a near-term outlook, the emerging market stocks alongside Mainland Shanghai, Chinese blue chips, Hang Seng and Sensex would likely to extend gains, while US Dollar would highly likely to be rangebound ahead of ECB and BoE minutes.

Read more on Japanese Yen here

[Disclaimer: The content of this article is personal opinion and should not be considered as investment advice or suggestion towards any trading activity.]


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