Global stocks hit five-week highs on Monday led by China’s post-holiday surge as investors bet on a steady recovery for the world’s no. 2 economy, but worries about rising COVID-19 infections capped gains in Europe and the United States.
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.
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 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.