Asia report: Most markets rise as Bank of Korea holds rates

Asia-Pacific stock markets finished with a mixed performance on Thursday, with strong gains in Japan and South Korea, while China and Hong Kong faced some headwinds.

The Bank of Korea’s decision to maintain lending rates for the seventh consecutive month drove the positive sentiment in Seoul.

“Asia stocks concluded the month with a mixed and uncertain performance, despite notable gains, as uncertainty lingered around the Israel-Hamas truce, which was eventually extended for one more day,” said TickMill market analyst Patrick Munnelly.

“Investors grappled with significant data releases, including disappointing official PMI figures from China.

“The Nikkei 225 fluctuated between gains and losses, influenced by recent currency strength and mixed data, with better-than-expected industrial production offset by softer retail sales.”

Munnelly noted that the Kospi managed to stay afloat following the Bank of Korea’s decision to maintain interest rates alongside a restrictive policy stance until inflation reached its target level.

“The Hang Seng and Shanghai Composite showed indecisiveness, facing slight pressure after Chinese PMI data revealed a slightly deeper contraction in factory activity, raising the possibility of further supportive measures.

“Additionally, the Biden administration is expected to announce tax credit rules aimed at limiting China’s influence in the US electric vehicle market.

“The complex array of factors contributed to the uncertainty in the regional markets.”

Most bourses above the waterline by the close of trading

In Japan, the Nikkei 225 index rose by 0.5% to 33,486.89, and the Topix index increased by 0.44% to 2,374.93.

Notable gainers in Japan’s market included Advantest with a 4.32% increase, NEC with a 3.95% rise, and Kawasaki Kisen Kaisha with a 3.24% uptick.

Meanwhile, China’s stock markets displayed a mixed picture, with the Shanghai Composite increasing by 0.26% to 3,029.67, while the Shenzhen Component slipped by 0.18% to 9,726.92.

The gains in Shanghai were led by Dalian Sunasia Tourism Holding and Harbin Dongan Auto Engine Co, both recording a 10.03% gain.

In Hong Kong, the Hang Seng Index showed a modest increase of 0.29%, closing at 17,042.88.

Leading the gains were Hansoh Pharmaceutical Group, up 4.63%; Zhongsheng Group, with a 3.2% rise; and Tencent Holdings, which gained 3.15%.

South Korea’s Kospi index was up by 0.61% to 2,535.29 following the central bank’s lending rate decision.

Sebang Global Battery and Hansol Chemica were among the biggest gainers, posting increases of 9.94% and 7.43%, respectively.

Australia’s S&P/ASX 200 index recorded a substantial gain of 0.74% to close at 7,087.30, led higher by Codan and Mirvac Group with gains of 4.72% and 4.57%, respectively.

In New Zealand, the S&P/NZX 50 index advanced by 0.84% to 11,330.20, with Oceania Healthcare and Restaurant Brands New Zealand leading the way, posting increases of 5.71% and 4.01%, respectively.

In currency markets, the dollar was last 0.22% stronger on the yen, trading at JPY 147.56, while it gained 0.19% against the Aussie to AUD 1.5141.

The greenback also advanced on the Kiwi, last rising 0.12% to change hands at NZD 1.6264.

On the oil front, Brent crude futures were last up 1.68% on ICE at $84.50 per barrel, while the NYMEX quote for West Texas Intermediate rose 1.91% to $79.35.

Bank of Korea stands pat on rates, China factory activity declines

In economic news, South Korea’s central bank opted to maintain its benchmark policy rate at 3.5%, marking the seventh consecutive meeting with no change.

The decision aligned with the expectations of economists surveyed by Reuters.

In its announcement, the Bank of Korea highlighted that although inflation exceeded previous projections, it was anticipated to follow its ongoing deceleration trend.

Notably, the BoK expressed reduced concerns regarding further tightening by the US Federal Reserve and geopolitical risks.

However, the bank also noted expectations of a continued global economic slowdown in 2024, influenced by the restrictive monetary policies of major economies.

“The BoK is juggling multiple factors in its policy making, including a higher inflation outlook, the high household debt levels and the risks to growth,” said Duncan Wrigley at Pantheon Macroeconomics.

“Governor Rhee said the current tightening policy should remain in place until inflation falls to 2%, probably the end of 2024 or early 2025.”

Wrigley noted that the governor said fiscal rather than monetary policy should help low-income households struggling with high borrowing costs.

“We still think the BoK is likely to start loosening policy in Q3 next year, given the ‘higher for longer’ message, rather than in the second quarter as we previously expected.

“Inflation should have eased somewhat by then, and we expect the BoK to shift its focus towards supporting growth when the US begins its rate cutting cycle.”

South Korea meanwhile faced an unexpected downturn in its industrial output, with a month-on-month decline of 3.5% in October, surprising economists who had predicted a 0.5% increase.

The sharp drop followed a revised 1.7% rise in September, marking the most significant monthly contraction since October last year.

On a year-on-year basis, industrial output expanded by 1.1% - a slower pace compared to September’s 2.9% growth and significantly below the 5.2% forecast by economists.

Additionally, retail sales in South Korea contracted further, declining by 0.8% month-on-month in October, representing a deeper contraction than the revised 0.1% fall observed in September.

Meanwhile, factory activity experienced its second consecutive monthly decline in China in November, indicating that the world’s second-largest economy could require more substantial policy support.

According to the National Bureau of Statistics, the official manufacturing purchasing managers’ index (PMI) dipped slightly to 49.4 in November, down from 49.5 in October.

That reading fell slightly short of the 49.7 median forecast in a Reuters poll.

“The December Central Economic Work Conference is likely to prioritise rebalancing and high-quality growth over sheer growth, with the target growth rate probably remaining unchanged, at ‘about 5%’,” Pantheon’s Duncan Wrigley said.

“Policymakers are determined to reduce the reliance of the economy on the residential property sector, while boosting the size of advanced manufacturing.”

Wrigley said priorities for next year should include reducing financial risks stemming from developer and local government debt.

“China probably will rely on fiscal stimulus, mainly via fixed asset investment, to stabilise growth.

“Don’t expect a major consumption stimulus, given policymakers’ wariness about encouraging welfarism and laziness.”

In Japan, retail sales registered growth, albeit slower than seen throughout the year.

Official data showed that Japan’s retail sales increased by 4.2% in the last month, falling short of the 5.9% rise anticipated in a Reuters poll.

That marked the smallest retail gain in Japan since December 2022.

Conversely, Japan’s industrial output exceeded expectations, rising by 1.0% in October, surpassing forecasts of a 0.8% increase.

Reporting by Josh White for Sharecast.com.