Asia: Markets under pressure as Japan enters second recession in two years

Asian stocks began the week on a downbeat note, as the terrorist attacks in Paris and news that Japan has entered recession for the second time in two years weighed on sentiment.

On Sunday evening, the French government gave the greenlight to a series of airstrikes on Islamic State targets in Syria.

“The reinforcement of security measures in big European cities and the air strikes in Syria are expected to boost government spending on police and military and could give a bump to short-term domestic demand,” said Ipek Ozkardeskaya, market analyst at London Capital Group.

“The long-term impact is contingent on the gravity of the situation.”

China’s Shanghai Composite Index was the only benchmark to close in the black on Monday, as it gained 0.73%.

Shares in mainland China had declined earlier in the day, after the Shanghai and Shenzhen stock exchanges late on Friday unveiled plans aimed to make buying shares using borrowed money more complicated from 23 November.

Investors will only be allowed to borrow an amount equal to the funds in their investment accounts, while now they can borrow an amount twice as big.

Hong Kong’s Hang Seng Index fell 1.72%, while South Korea’s Kospi and Australia’s S&P/ASX 200 fell 1.53% and 0.94% respectively.

In Japan, the Nikkei Stock Average lost 1.04% after data showed Asia’s second largest economy entered recession in the third quarter, with gross domestic product declining 0.8% year-on-year, marking the second consecutive period of contraction after a 0.7% decline in the second quarter.

“This is the second recession under Shinzo Abe, who has been in power since 2012, and no doubt this brings up many questions regarding the validity of Abenomics, which have been aimed at restoring growth and ending endemic deflation,” said IG’s market analyst Joshua Mahony.

“For those expecting the BoJ to hold off on any further action, today’s news will no doubt bring the likeliness of further easing into sharp focus.”

On the currencies front, the Japanese yen reached its highest level in a week against the dollar, before relinquishing some of the gains to trade 0.27% lower against the greenback. The Australian dollar fell by the same margin against its US counterpart, while the onshore yuan gained 0.06% against the dollar.