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China: Asian markets follow Wall Street rally, boosted by Chinese hopes

Asian markets rallied on Wednesday, buoyed by a strong performance on Wall Street and helped by the reopening in China, although analysts continue to warn of short-term volatility caused by soaring inflation, rising interest rates and the war in Ukraine.

Stocks have enjoyed some respite in recent weeks after a painful sell-off caused by central bank monetary tightening – particularly by the Federal Reserve – and a price spike that is starting to hit consumers, raising fears of an economic slowdown. or a recession.

A drop in US Treasury yields gave New York traders a boost, as did a jump in Chinese companies listed there, fueled by growing optimism that Beijing will ease its longstanding crackdown on the sector. technological.

The mood around the tech has improved after a report this week said China is set to end an investigation into ride-hailing app Didi Global and restore its core apps this week. .

The Wall Street Journal also said investigations into two other companies — Full Truck Alliance and recruitment platform Kanzhun — were coming to an end.

And on Tuesday, authorities approved a second batch of 60 games in a further step to ease their approach to the world’s biggest mobile entertainment market.

Citi analysts said “the announcement will also send a positive signal of policy support to the entire Chinese internet industry.”

Market heavyweights rallied in Hong Kong with Alibaba up more than 6%, Netease up 4% and Tencent up more than 3%, helping the Hang Seng index climb more than 1% .

Shanghai, Tokyo, Sydney, Seoul, Wellington, Taipei and Manila were also well into positive territory.

The moves come as Beijing eases its strict Covid lockdown measures, allowing the world’s second-largest economy to come back to life after months.

“The rebound in risk sentiment is driven by a more positive tilt from China where the outlook is expected to brighten as Covid restrictions ease, and state-owned banks are forced to increase lending again,” said Stephen Innes of SPI Asset Management.

“It certainly feels like the tide is turning on the continent, although the overall tone is still leaning more cautiously optimistic, with a key emphasis on ‘cautiously’.”

All eyes are on Friday’s release of US inflation data to get a better idea of ​​the Fed’s plans as it raises borrowing costs.

Officials are expected to raise rates by half a point each in June and July, with some commentators warning that a strong report on Friday could allow them to unveil a three-quarter point move in September.

Such a move would push the dollar even further against its peers, with the unit at a 20-year high against the yen.

And observers said the uncertainty would continue to cause volatility in the markets.

“The reality of the economy and probably the stock markets is that aggressive central bank interest rate hikes are likely to eat into household consumption sharply as cost of living pressures come from goods and services. , depressed real wage gains and significantly higher mortgage servicing,” Innes added.

“Therefore, the central bank’s ultimate goal is to calm inflation by slowing the economy and tightening financial conditions at the expense of stock market investors until price pressures abate.”

And BlackRock’s Kate Moore told Bloomberg Television that “determining the direction over the next couple of months is getting harder and harder.”

“There seems to be a lack of strong conviction in the direction of the market across all investment segments. We’re going to see a lot more investors sitting on the sidelines, staying cautiously positioned.”